Did you report unemployment income on your SC tax return? You’ll want to refile
Income tax filers who reported unemployment income on their 2020 state tax returns will be able to file an amended return to lower their tax burden to the state.
As part of the federal American Rescue Plan Act signed in March, the federal government opted not to tax the first $10,200 of unemployment benefits for people who earned less than $150,000 in 2020.
In order to limit taxes on people who lost their jobs last year during the pandemic, the state conformed to the federal rule, but the bill, which passed by the General Assembly toward the end of the legislative session, was signed by Gov. Henry McMaster after the May 17 tax filing deadline.
In total more than 2.3 million income tax returns have been filed in the state for this season.
People who reported unemployment income in 2020 will have three years to file an amended return, the S.C. Department of Revenue said.
Last year, about 30,000 people filed amended returns, according to the Revenue Department.
According to the Department of Employment and Workforce, more than 810,000 initial unemployment claims were filed between March 15, 2020, and Jan. 2. The COVID-19 pandemic led to an economic slow down and the federal government provided additional assistance to people who lost their jobs.
How much each person can reduce their tax burden to the state will depend on several factors such as their total taxable income and number of deductions the person claims.
Conforming with the federal government on the unemployment provision will cost the state $61.3 million in lost income tax revenue. However, the lawmakers plan to use $61.3 million of the state’s $2.5 billion share of American Rescue Plan money to cover that revenue gap.
More than 10 million taxpayers filed federal returns before the American Rescue Plan became law. So the IRS plans to adjust the federal returns and notify affected taxpayers of the changes for people who included unemployment compensation in their taxable income, a process expected to be completed by the end of the summer.
For tax filers who claimed unemployment benefits as income on their tax returns but who don’t receive an IRS notice but still want to refile, the state’s tax agency recommends subtracting up to $10,200 of unemployment compensation from their taxable income and including the adjusted amount on their amended South Carolina return.
Taxpayers who filed a federal return that excluded unemployment compensation, but who added the amount back to their original South Carolina return, will need to remove up to $10,200 of unemployment compensation on an amended South Carolina return.
Married couples filing jointly may each exclude up to $10,200 of unemployment payments from their taxable income.
It will take at least 12 weeks for an amended return to be processed, according to the state Revenue Department.
This story was originally published May 26, 2021 at 9:37 AM.
