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? (added April 29, 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.

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 June 8, 2021)

A2. Yes. Once you're aware the exclusion of up to $10,200 in unemployment compensation now makes you eligible for a credit or deduction not claimed on your original return, 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.

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

Example: You didn't claim the Earned Income Tax Credit (EITC) 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 a $250 EITC. However, you need to file an amended return including a Schedule EIC to claim the EITC and any other credits 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.