There are probably a lot of people who are unemployed and are rushing to file files. People are still panicking and wanting a refund ASAP.
Taxpayers may not be so lucky at the state level.
For one thing, a dozen states don’t offer unemployment benefits tax breaks, which means workers have a state tax liability.
States that have implemented the federal tax cut may not automatically issue a refund.
“There are likely a lot of unemployed people rushing to file files,” said Albert Campo, a chartered accountant based in Manalapan, New Jersey. “People are still panicking and wanting a refund as soon as possible.”
In such cases, early filing taxpayers may need to file an amended state tax return in order to receive a state tax refund.
The situation will vary from state to state.
For example, New Mexico suggests that eligible taxpayers file amended tax returns.
That could mean a lower tax, bigger refund, and higher qualification for certain tax credits and tax exemptions for which they were previously ineligible, according to the state tax and tax authority.
Exclusion from unemployment
The federal tax break is technically an “exclusion”. This allows taxpayers to exclude unemployment benefits of up to $ 10,200 from their taxable income. A government tax return filed before mid-March will still reflect higher income without the exclusion.
“Taxpayers who filed their income tax returns prior to the passage of the American Rescue Plan Act may want to file an amended return to reflect their new bill [adjusted gross income] … and to claim a refund you may now be owed, “according to the New Mexico Tax Department.
However, the Massachusetts Department of Treasury is requesting taxpayers who filed their 2020 tax return without claiming the tax break not to file an amended state tax return.
“If a taxpayer is eligible for a refund, the department will issue a refund payment to the taxpayer and the taxpayer will not have to take any action,” the agency said.
Massachusetts governor Charlie Baker signed a bill on April 1 to give tax breaks to households whose incomes are less than 200% of federal poverty.
Twelve states don’t offer tax breaks for the unemployed, according to H&R Block data dated April 5.
They are: Colorado, Georgia, Hawaii, Idaho, Kentucky, Minnesota, Mississippi, North Carolina, New York, Rhode Island, South Carolina, and West Virginia.
Taxpayers in these states who filed a tax return after the US rescue plan was passed may have incorrectly excluded unemployment benefits from their state tax returns as well as from their federal returns.
These taxpayers would have had to pay back the unemployment benefit to their income in their state tax returns.
However, some states do not automatically correct returns. They are asking taxpayers to file an amended state tax return to accurately reflect income.
This is the case in New York, for example.
“If you’ve already filed your New York State 2020 tax return and haven’t added unemployment benefits that were excluded from your gross income, you will need to file an amended tax return with New York State,” according to the Department of Taxes and Finance.
In other states like Hawaii the situation is even more complex.
Hawaii state law is considering introducing tax breaks for the unemployed. However, taxpayers will not know whether the measure will pass until after the adjournment of the April 29 legislature, according to the Hawaii Treasury Department.
That gets taxpayers in trouble. The state has not extended the tax deadline, which is currently April 20th. Taxpayers are unlikely to know what the final rules are when filing their state taxes.
The state requires taxpayers to file a state tax return without taking advantage of the tax break.
“If Hawaii conforms to a federal regulation that reduces the amount of tax owed after filing your tax return, an overpayment can be claimed by filing an amended tax return,” said the Treasury Department.
Taxpayers could strongly consider applying for a tax extension in such cases, Campo said.
They would still have to estimate and pay their taxes by the state’s tax deadline, but then would not have to bear the cost of filing an amended tax return later, he said.
A similar dynamic can also occur in other countries.
Arizona and Vermont, for example, allow residents to apply for the tax break on state tax forms, but haven’t officially passed the federal rule yet, according to the H&R Block. If it ultimately doesn’t, a modified return may be required.