On March 11, 2021, The American Rescue Plan Act included a provision to exclude $10,200 of unemployment compensation from taxable income if the taxpayer’s modified AGI was $150,000 or less.
On April 1st, the State of Michigan notified taxpayers that they would be conforming to the Federal law, and that those who filed a return that did not include this exclusion may be entitled to a refund. At that time, the State of Michigan asked taxpayers to refrain from filing an amended return, and to await further guidance as they explored options to automate the potential refunds.
The unemployment income exclusion has been an ever-evolving circus. We had hoped and anticipated that the State of Michigan would find a way to automatically update taxpayer returns and send refunds accordingly, but, unfortunately, we now know that they were unable to achieve this.
As of now, the State of Michigan has been unable to provide an automated mechanism and is advising taxpayers to proceed with filing an amended return.
While this is overall a good thing for taxpayers, it is unfortunate that their preparers will have to charge to prepare amended returns when it was of no fault of the taxpayer nor of their tax professionals.
Should you file a Michigan amended return?
- If you qualify and filed a 2020 return without the $10,200 unemployment compensation exclusion, then YES, you will most likely need to file an amended return.
- For those who are entitled to a refund, you will need to file an amended return in order to receive your refund. Your Federal return, Form 1040, should have been automatically corrected by the IRS, whereas your state return was not corrected automatically, and will need to be amended.
How to file an amended return?
- Here is a link to the State of Michigan, Form MI-1040X
- Taxpayers who filed an original return, and either claimed a refund or paid with their return, will need to file an amended return to claim their entitled refund.
- Be sure to check the box on Form MI-1040, line 31A, and include any refund received from the original return, and provide the explanation as to why the return is being amended.
- The Michigan Department of Treasury strongly encourages you to file and submit returns electronically.
- Be sure to include the following (if applicable):
- Proof that the IRS has adjusted the federal return due to the unemployment exclusion (e.g., a copy of a federal adjustment letter), if the taxpayer has received it.
- Schedule AMD, Amended Return Explanation of Changes (Form 5530), and all forms and schedules submitted with the original return.
- A copy of the 1099-G that reports unemployment compensation.
- Unfortunately, the State of Michigan does NOT allow direct deposit of refunds on amended returns at this time.
Clients of Senter CPA
When we caught word of the law change in the latter half of March, we started holding returns until the law was in place and forms were updated. But unfortunately, all returns that qualified, and that were filed before this time frame, will need to be amended.
Our hope was that the State of Michigan would find a solution to autocorrect the returns that were filed before the changes in law retroactively gave an exclusion for up to $10,200 of unemployment benefits, as this was no fault of our clients or our firm. Although this was not the case, it is still a good thing for taxpayers, and will ultimately result in a refund of your previously paid tax dollars.
At this time, we are reviewing all returns that we have filed on behalf of our clients, to identify who qualifies for the unemployment compensation exclusion, and those who would benefit from having Senter, CPA file their amended return.
We will be in contact with our clients who do qualify, to let them know the potential refund amount that is entitled to them, and the cost-benefit of having Senter, CPA file their amended return.
We certainly want to do our part and help our clients the best we can, but for some, it may be more cost effective to self-file your amended return, which is an option for anyone who needs to amend their return.
The key take away is, if you qualify for the unemployment exclusion, and didn’t take the exclusion on the original return, file an amended return now.
Details from the State of Michigan can be found HERE.
Senter CPA: Tax Planning & Preparation
Our goal is to be part of your team, help save tax dollars and achieve your goals. We are your trusted tax preparers and CPA in Clarkston, Michigan. If you are interested in discussing how you can best plan your charitable endeavors for tax purposes, please give us a call at 248-934-0550 or click the contact us button below. We look forward to hearing from you.
