MICHIGAN, USA — Tax season can be intimidating during times of very little change. For thousands of Michiganders who have relied on unemployment for the first time because of the pandemic, filing their taxes holds even more unknowns.
“The needs have changed significantly over the last couple years, especially with all of the tax laws that have passed,” said Dave Echelbarger, Managing Partner at EHTC, an accounting firm in Grand Rapids.
Echelbarger is a tax expert we brought in to help guide our viewers through some complicated tax changes this coming April.
Echelbarger says it’s important to start the process or filing taxes as early as possible. Even if you hold off on submitting, getting ahead early allows time for questions to be answered, and makes you ready in case changes come up last minute, which he said happened last year.
In March 2021, the American Rescue Plan Act (ARPA) became law. For a bill that impacts taxes so heavily to be signed on March 11 meant people who had already filed their taxes may have missed out on benefits or needed to make changes. He says conversations he’s had with state lawmakers led him to believe last minute changes aren’t coming this year, but having your filing ready early will make it easier to pivot if something does happen.
One of the biggest changes made possible by ARPA impacted unemployment benefits. It defined any unemployment compensation claimed in 2020 as not taxable, but that isn’t the case for 2021. He says that’s something to look out for. Especially if you claimed UI benefits in both years, it’s critical to know they aren’t treated the same as last year's filing.
When benefits were first received in the beginning of the year, applicants were given a choice of having taxes withheld. If you chose to withhold up front, you’re ahead of the game and won’t owe money come April.
“The bad news is we might have to owe taxes on that,” Echelbarger said. “The good news is we can look at some other credits that are out there, for example the earned income tax credit.”
The Earned Income Tax Credit (EITC) is based on your Adjusted Gross Income (AGI). This is where it starts to get a bit confusing. Unemployment benefits are considered taxable, but they don’t factor in to your AGI, meaning people who claimed unemployment have a good chance to be eligible for the EITC.
That eligibility changes depending on factors of the person filing. For a single filer without children, the maximum AGI is $21,430, and the credit comes out to $1,502. This credit especially is something to look out for because it has nearly tripled from past years. That same single filer credit was only $538 in 2020.
The credit did not grow nearly as much for filers with children, but did grow slightly in every category. You can find what the credit is for your all available options by clicking here.
Though our expert says it’s important to prepare your filing as early as possible, the UIA has announced that 1099-G forms are delayed, which will make things a bit more frustrating. Without those forms, you can still check and see if your benefits were withheld up front.
To find that information, you can check your MiWAM account, or create an account on the IRS website. On that same site, you can request a transcript of your taxes, which will give you most of the documents you need.
Echelbarger says it’s important to keep in mind how overwhelmed the IRS is, not just because of tax season, but understaffing as well.
“You could be on hold for one, two, four, even eight hours,” Echelbarger said. “Sometimes that call ends just in a call dropping and you start all over.”
He recommends waking up early to call the IRS with questions, starting around 7:30 a.m. in order to beat out the west coast callers.
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