IRS News: IRS letters explain why some 2020 Recovery Rebate Credits are different than expected

  WASHINGTON − As people across the country file their 2020 tax returns, some are claiming the 2020 Recovery Rebate Credit (RRC). The IRS is mailing letters to some taxpayers who claimed the 2020 credit and may be getting a different amount than they expected.

It's important to remember that the first and second Economic Impact Payments (EIP) were advance payments of the 2020 credit. Most eligible people already received the first and second payments and shouldn't or don't need to include this information on their 2020 tax return.

People who didn't receive a first or second EIP or received less than the full amounts may be eligible for the 2020 RRC. They must file a 2020 tax return to claim the credit, even if they don't usually file a tax return.

When the IRS processes a 2020 tax return claiming the credit, the IRS determines the eligibility and amount of the taxpayer's credit based on the 2020 tax return information and the amounts of any EIP previously issued. If a taxpayer is eligible, it will be reduced by the amount of any EIPs already issued to them.

If there's a mistake with the credit amount on Line 30 of the 1040 or 1040-SR, the IRS will calculate the correct amount, make the correction and continue processing the return. If a correction is needed, there may be a slight delay in processing the return and the IRS will send the taxpayer a letter or notice explaining any change.

Taxpayers who receive a notice saying the IRS changed the amount of their 2020 credit should read the notice. Then they should review their 2020 tax return, the requirements and the worksheet in the Form 1040 and Form 1040-SR instructions.

Here are some common reasons the IRS corrected the credit:

• The individual was claimed as a dependent on another person's 2020 tax return.
• The individual did not provide a Social Security number valid for employment.
• The qualifying child was age 17 or older on January 1, 2020.
• Math errors relating to calculating adjusted gross income and any EIPs already received.

IRS.gov has a special section - Correcting Recovery Rebate Credit issues after the 2020 tax return is filed – that provides additional information to explain what errors may have occurred. Taxpayers who disagree with the IRS calculation should review their letter as well as the questions and answers for what information they should have available when contacting the IRS.

The Internal Revenue Service urges people who have not yet filed their 2020 tax return to properly determine their eligibility for the 2020 before they file their 2020 tax returns. To calculate any credit due, start with the amount of any EIPs received. Use the RRC Worksheet or tax preparation software. Taxpayers who didn't save or didn't receive an IRS letter or notice can securely access their individual tax information with an IRS online account.

Anyone with income of $72,000 or less can file their Federal tax return electronically for free through the IRS Free File program. The fastest way to get a tax refund which will include your 2020 RRC is to file electronically and have it direct deposited into their financial account. Bank accounts, many prepaid debit cards and several mobile apps can be used for direct deposit when a routing and account number are provided. If using a prepaid debit card, check with the financial institution to ensure the card can be used and to obtain the routing number and account number, which may be different from the card number.

For more information, see IRS information letters about Economic Impact Payments and the Recovery Rebate Credit or visit IRS.gov/rrc and the frequently asked questions by topic.

• Topic A: Claiming the Recovery Rebate Credit if you aren't required to file a tax return
• Topic B: Eligibility
• Topic C: Claiming the Credit
• Topic D: Calculating the Credit
• Topic E: Receiving the Credit
• Topic F: Finding the First and Second Economic Impact Payment Amounts to Calculate the 2020 Recovery Rebate Credit
• Topic G: Correcting issues after the 2020 tax return is filed

New Individual Update - Unemployment exclusion and Due Dates are now available

 This morning, we released federal form updates relating to both the unemployment exclusion and the 5/17 due date. 

Important: The IRS has stated that there is no need to file an amended return (Form 1040-X) to figure the amount of unemployment compensation to exclude. The IRS will re-calculate and send the difference.

For states who have already declared their intentions on these issues, we are targeting a 3/29 release for those state forms. Please refer to our Wolters Kluwer "Latest Impacts" landing page or to state government websites for individual state impacts.

Direct Debit Payment Dates: Please be aware that the IRS still has not changed their business rule for Direct Debit payment dates, and cannot currently accept Direct Debit payment dates that are after 4/15/21 (even though our software now has been updated to allow dates between 4/15 and 5/17). Until the IRS updates their rule for this, any returns with Direct Debit payment dates after 5/15 will be rejected by the IRS.

Expected 3/29 Individual Update - Unemployment $10,200

 Last week I sent everyone an updated email outlining the expected timeframe for the new calculation changes for the $10,200 Unemployment expenses and have some new information that is extremely important for you to understand and to read.

Many of you have been calling in regarding the IRS Worksheet they mentioned on their website, also been referring to other software manufacturers such as TurboTax implementing the changes based on the worksheet.  I specifically told everyone to hold off on all these types of returns because we have been waiting for the IRS to fix everything at the e-file center.

The IRS has confirmed that the Worksheet and calculation "workarounds" that have been released were for Paper Filing Returns ONLY!!

By March 29, 2021, we will have the software updated to ensure these calculations are based on IRS e-filing guidance and are auto-calculated.

The majority of tax returns filed using our software are e-filed rather than paper filings. We want you to be aware the recently released IRS guidance for handling unemployment compensations due to the American Rescue Plan Act of 2021 changes are for paper filings, not those who choose to e-file.

We have chosen not to provide you with workarounds and manual calculations to input the pertinent data into your tax preparation filing software. These workarounds would be drawn from recently released IRS guidance for paper filings and possibly cause rework at a later date.

On top of all of this, the IRS has still said to not e-file any Amended returns regarding this issue because they are now in the process of just possibly sending out a check to everyone instead of requiring an Amended tax return to be filed.

With all of that being said.. what are your options?

1. We still strongly advise you to be patient and wait until the official updates have been made within our software and at the IRS level for e-filing the returns that haven't been filed yet
2. IF you, or your customer, simply can't wait then you can take the chance and file the return as is, and they will have to deal with whatever decision the IRS makes on how to get the missing money they are hoping to receive based on those tax exclusions.

As a Tax Preparer, it is your job to guide your clients into making the best decisions for them and their needs.  We all know and understand some people simply just need money now.  However, it's up to you to make the best judgment call for your clients and helping them make the correct decisions.

Amendments with Bank Products, $10,200 unemployment changes, and more

This message is going to be short and to the point, but very descriptive and express total industry irritation.  We all know the glorious new law changes that they have pushed out and causing all of us in the tax preparation business to pull our hair out and want to bang our head against the wall.  Not only is it causing you all stress, but it's causing all us technical help providers, and software manufacturers, a great deal of stress knowing that we literally know nothing!

The IRS has said nothing on how exactly they are going to deal with the Child Tax Credit / Unemployment tax changes.  In addition to this fun idea, there are 34 states that actually charge a tax for Unemployment Benefits, and a few states are deciding this week "hey, we should go ahead and waive this also!"

You can imagine the amount of confusion, frustration, and pure stress this is causing everything.  I'm not immune to this either.  This has been one of the most painful years we have had in a long time.  We do typically have the additional stress when a new president enters the white house.  Do you remember back when Obama took office and the incredibly awesome nightmare the IRS shutdown caused in addition to the new law changes with the Affordable Care Act and the nightmare of the IRS getting everything organized to accept those returns?  Form 8962 is very confusing for a lot of tax professionals, even some veterans.

Back to the point at hand - American Rescue Plan Act & Bank Loan / Product Amended Returns...

We, Sure-Fire and the Development Team for the software, have absolutely no idea what to expect with these new law changes that recently happened. American Rescue Plan Act passed 3/10/21and is expected to be signed into law shortly. The most notable change for tax purposes makes the first $10,200 of unemployment relief received in 2020 exempt from tax for households with up to $150,000 of income.  For this, we are all going to strongly encourage that you completely hold off on all amended tax returns regarding the new tax law changes until IRS completely says how they are going to handle everything because right now, no one knows anything.  We don't know if amended returns will be required, or if they will just cut a rebate check to everyone.  We don't know. 

For those with Bank Loans / Regular Bank Product on tax returns and not able to do Amended Tax Returns because of them being 'locked' for a Bank Product, or a Loan on the return, we got word today that it will be a fix implemented in the next 1040 Individual Update.  We haven't been told an exact release date for this update, only that it will be released sometime between tomorrow and Wednesday of next week.

This new update will allow you to submit a 1040X by e-file without having to remove the existing bank product on the return.  This was cleared earlier today with banks and regulatory parties involved with handling this type of situation.

 

We hope you keep your head up during all the panic going around in the industry and from your clients.  Feel free to contact us with any questions you may have and continue to tell your clients "I don't have your stimulus money, don't sue me bro!" (tax preparer meme).

 

(Reject 38) 35.02 Required Program Update Released!

To download program updates from the Communications menu, use the following steps:

1. In order to download updates from the Communications menu, you must be logged into the tax software.
2. Click the Communications menu and select Get Program Updates
3. Click OK on the Program Update dialog box.
4. The Software will download the update.
5. The Program will Prompt you to Close and Reopen the program in order to apply the update

As always, it's a good idea to get in habit of every day when you first open the program to do:

1. Communications > Get Program Updates
2. Communications > Get Module Updates

2021 tax filing starts Feb 12th

 IRS has just released the following press release: https://www.irs.gov/newsroom/2021-tax-filing-season-begins-feb-12-irs-outlines-steps-to-speed-refunds-during-pandemic

2021 tax filing season begins Feb. 12; IRS outlines steps to speed refunds during pandemic

 

Key filing season dates

There are several important dates taxpayers should keep in mind for this year's filing season:

• January 15. IRS Free File opens. Taxpayers can begin filing returns through Free File partners; tax returns will be transmitted to the IRS starting Feb. 12. Tax software companies also are accepting tax filings in advance.
   
• January 29. Earned Income Tax Credit Awareness Day to raise awareness of valuable tax credits available to many people – including the option to use prior-year income to qualify.
   
• February 12. IRS begins 2021 tax season. Individual tax returns begin being accepted and processing begins.
   
• February 22. Projected date for the IRS.gov Where's My Refund tool being updated for those claiming EITC and ACTC, also referred to as PATH Act returns.
   
• First week of March. Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and there are no issues with their tax returns.
   
• April 15. Deadline for filing 2020 tax returns.
   
• October 15. Deadline to file for those requesting an extension on their 2020 tax returns

Filing season opening

The filing season open follows IRS work to update its programming and test its systems to factor in the second Economic Impact Payments and other tax law changes. These changes are complex and take time to help ensure proper processing of tax returns and refunds as well as coordination with tax software industry, resulting in the February 12 start date.

The IRS must ensure systems are prepared to properly process and check tax returns to verify the proper amount of EIP's are credited on taxpayer accounts – and provide remaining funds to eligible taxpayers.

Although tax seasons frequently begin in late January, there have been five instances since 2007 when filing seasons did not start for some taxpayers until February due to tax law changes made just before the start of tax time.