2020 Unemployment Compensation Exclusion FAQs — Topic D: Amended Return (Form 1040-X)

Q1. What if I already filed my 2020 tax return? Do I need to file a Form 1040-X to amend my tax return to report the exclusion? (updated July 8, 2021)

A1. Unless you're entitled to a new credit or additional deductions as described in Topic E, there's no need to file an amended return (Form 1040-X) to report the amount of unemployment compensation to exclude. The IRS will perform the corrections starting in late May and continue throughout the summer and into the fall.

If you already filed your tax return, we'll determine the correct taxable amount of unemployment compensation and tax. We'll also adjust any non-refundable or refundable credits that you reported on your return that are impacted by the exclusion. In addition, if you did not claim the Recovery Rebate Credit, Earned Income Credit with no qualifying dependents or the Advance Premium Tax Credit on your tax return, but are now eligible when the unemployment exclusion is applied, you do not need to file an amended return. The IRS will calculate the credit for you and include it in any overpayment.

Any resulting overpayment of tax will be either refunded by direct deposit or by paper check or will be applied to your other outstanding tax liabilities.

A notice confirming the change will be sent to you when your return is corrected. Keep that notice for your records in case your tax return preparer or state department of taxation requests a copy.

Q2. What if I know I'll be entitled to a credit or deduction that wasn't claimed on my tax return? Should I file an amended return? (updated November 12, 2021)

A2.  It depends.  If you are eligible to exclude up to $10,200 in unemployment compensation and the exclusion  makes you eligible for a credit or deduction not claimed on your original return, you should file an amended return to claim the new credit or deduction. You can file this amended return electronically if the original return was filed electronically. See Form 1040-X, Amended U.S. Individual Income Tax Return for additional information.

Exceptions:

  • If you are eligible to exclude up to $10,200 in unemployment compensation, you do not need to file an amended return to claim the Recovery Rebate Credit, Earned Income Tax Credit with no qualifying children or the Premium Tax Credit, even if it wasn’t claimed on your return. If you are now eligible for these credits when the unemployment exclusion is applied, the IRS will calculate the credit for you and include it in any overpayment.
  • You should not file an amended return to claim the Additional Child Tax Credit (ACTC) or Earned Income Tax Credit (EITC) if you reply to a CP08 or CP09 notice stating you may be eligible for one of these credits and you are not requesting any other changes be made to your 2020 tax return. If you received one of these notices, see FAQ Why did I receive an IRS CP08 notice saying I may be eligible for the Additional Child Tax Credit? and FAQ Why did I receive an IRS CP09 notice saying I may be eligible for the Earned Income Credit? 

The IRS will adjust the credits already claimed on your return that are impacted by the exclusion.

Example: You didn't claim the EITC or ACTC for your qualifying children on your 2020 tax return because your AGI was too high. Because the unemployment compensation exclusion reduced your AGI, you're now eligible for an EITC or ACTC, but did not receive the credit after your unemployment compensation exclusion was applied. In this case, you need to either (1) reply to a CP08 or a CP09 notice if you received it or (2) file an amended return including a Schedule EIC to claim the EITC, Schedule 8812 to claim ACTC, and any other credits (other than the Recovery Rebate Credit, the Earned Income Tax Credit with no qualifying children or the Premium Tax Credit) not claimed on your original return. If, instead, you claimed $50 in EITC on your 2020 tax return, don't file a Form 1040-X solely to change the EITC amount. The amount of this and other credits that you claimed on the original return will automatically be adjusted by the IRS when we apply the exclusion.

Q3. I already filed an amended return (Form 1040-X) to claim the unemployment compensation exclusion, will this cause any issues or delay my refund? (added April 29, 2021)

A3. No. The IRS can identify a duplicate claim or mixed adjustment scenarios. If the Form 1040-X has changes other than unemployment compensation exclusion, only the part of the claim that was not adjusted when we applied the exclusion will be considered after we apply the exclusion. Filing a Form 1040-X won't increase the time it takes the IRS to make the automatic correction or reduce the time it takes to process your automatic correction.

Q4. Do I need to file an amended return if I live in a community property state and did not enter the correct exclusion amount on Schedule 1, line 8? (added July 7, 2021)

A4. If you entered an exclusion amount less than what it should have been based on  FAQ I'm married and live in a community property state. Am I eligible for the exclusion?, you do not need to file an amended return. The IRS will recalculate your exclusion amount following this guidance and adjust your return for the difference. These corrections are currently planned for later this summer. You will receive a notice regarding the correction within 30 days of your account being adjusted.