News & Tech Tips

Ohio Income Tax Update: Unemployment Benefits

Kathleen Hargrove on April 8, 2021

Last month, Sub. S.B. 18 was signed into law. This incorporates recent federal tax changes into Ohio law effective immediately.

 

Specifically, federal tax changes related to unemployment benefits in the federal American Rescue Plan Act (ARPA) of 2021 will impact some individuals who have already filed or will soon be filing their 2020 Ohio IT 1040 and SD 100 returns (due by May 17, 2021).

 

Ohio taxes unemployment benefits to the extent they are included in federal adjusted gross income (AGI). Due to the ARPA, the IRS is allowing certain taxpayers to deduct up to $10,200 in unemployment benefits. Certain married taxpayers who both received unemployment benefits can each deduct up to $10,200. This deduction is factored into the calculation of a taxpayer’s federal AGI, which is the starting point for Ohio’s income tax computation.

 

Many taxpayers filed their 2020 federal and Ohio income tax returns and reported their unemployment benefits prior to the enactment of this deduction.

 

As such, ODT offers the following guidance related to the unemployment benefits deduction for tax year 2020:

 

  • Taxpayers who previously filed federal and Ohio tax returns and are waiting for IRS to issue a refund based on the unemployment benefits deduction.

 

  • All other taxpayers who previously filed their federal and Ohio returns prior to the enactment of this federal deduction and are waiting for the IRS to issue a refund based on the unemployment benefits deduction do not need to take any additional action on their originally filed Ohio IT 1040 return (and/or SD 100) at this time. The Department will provide further guidance when more details are available from the IRS, please continue to monitor our website.

 

  • Taxpayers who previously filed federal and Ohio tax returns without the unemployment benefits deduction, but who are not entitled to any additional Ohio refund.

 

  • Taxpayers who previously filed their federal and Ohio returns prior to the enactment of this federal deduction and whose Ohio income tax liability amount (IT 1040, line 10) was $0, do not need to take any additional action. Such taxpayers are not entitled to any additional Ohio refund.

 

  • Taxpayers who are amending their federal return to claim the unemployment benefits deduction.

 

  • Taxpayers who file an amended federal return should wait to file their amended Ohio IT 1040 (and an amended SD 100 if applicable) until the IRS has approved the requested changes.

 

  • Please note that the IRS does not recommend filing an amended return for the adjustment at this time.

 

The IRS’s current guidance on the federal taxation of unemployment benefits can be found here and how they will recalculate taxes on unemployment benefits can be found here.

 

If you have additional questions or need assistance, please work with your Whalen Advisor.

 

 

SOURCE: Ohio Department of Taxation

Who qualifies for “head of household” tax filing status?

Kathleen Hargrove on April 6, 2021

When you file your tax return, you must check one of the following filing statuses: Single, married filing jointly, married filing separately, head of household or qualifying widow(er). Who qualifies to file a return as a head of household, which is more favorable than single?

To qualify, you must maintain a household, which for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent (unless you only qualify due to the multiple support rules).

A qualifying child?

A child is considered qualifying if he or she:

  • Lives in your home for more than half the year,
  • Is your child, stepchild, adopted child, foster child, sibling stepsibling (or a descendant of any of these),
  • Is under age 19 (or a student under 24), and
  • Doesn’t provide over half of his or her own support for the year.

If a child’s parents are divorced, the child will qualify if he meets these tests for the custodial parent — even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.

A person isn’t a “qualifying child” if he or she is married and can’t be claimed by you as a dependent because he or she filed jointly or isn’t a U.S. citizen or resident. Special “tie-breaking” rules apply if the individual can be a qualifying child of (and is claimed as such by) more than one taxpayer.

Maintaining a household 

You’re considered to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs and upkeep, and food consumed in the home. Don’t include items such as medical care, clothing, education, life insurance or transportation.

Special rule for parents 

Under a special rule, you can qualify as head of household if you maintain a home for a parent of yours even if you don’t live with the parent. To qualify under this rule, you must be able to claim the parent as your dependent.

Marital status

You must be unmarried to claim head of household status. If you’re unmarried because you’re widowed, you can use the married filing jointly rates as a “surviving spouse” for two years after the year of your spouse’s death if your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household. The joint rates are more favorable than the head of household rates.

If you’re married, you must file either as married filing jointly or separately, not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household, you’re treated as unmarried. If this is the case, you can qualify as head of household.

We can answer questions if you’d like to discuss a particular situation or would like additional information about whether someone qualifies as your dependent.

TIGTA reports IRS swamped with backlog of unprocessed returns

Kathleen Hargrove on April 1, 2021

TIGTA (Treasury Inspector General for Tax Administration) has conducted and audit and reported that the unprocessed individual returns, as well as the additional returns and correspondence in the Error Resolution, Rejects, and Unpostables functions and the Accounts Management inventory, include returns, etc. for taxpayers who still have not received their tax year 2019 tax refunds, the audit noted.

TIGTA stressed that IRS’s ability to resolve the backlog may well be impacted by the need to divert manpower and other resources to issuing economic impact payments or an unforeseen closure of Tax Processing Centers due to the pandemic. “The ability of these taxpayers to contact the IRS to receive updated information about the status of their refunds is a further challenge as staffing issues continue to hinder the IRS’s ability to provide adequate customer service,” the audit said.

The bulk of the work done at Tax Processing Centers “is not conducive to a telework environment,” TIGTA said. As described in the audit, “this work includes the receiving, sorting, and distributing of mail and the processing of paper tax returns, which requires manually inputting information from the tax return into IRS systems, correcting errors, and corresponding with the taxpayer, if needed.”

IRS has been able to restore most of its toll-free taxpayer assistance telephone lines and reopen many of its Taxpayer Assistance enters, the audit said.

Ohio Postpones Tax Filing Deadline to 5/17, Tax Conformity Passes

Kathleen Hargrove on March 25, 2021

OHIO TAX DEADLINE EXTENDED

 

Ohio Tax Commissioner Jeff McClain announced Wednesday that Ohio will be following the federal government and the IRS in extending the deadline to file and pay Ohio individual income and school district income taxes for tax year 2020.

 

The new deadline is May 17, an extension of approximately one month from the original deadline of April 15. The extension is intended to provide some relief to individuals impacted by the public safety measures adopted to contain the spread of the coronavirus.

 

As with the IRS extension, Ohio will be waiving penalty on tax due payments made during the extension. Also, as part of legislation passed addressing the continuing emergency, there will be no interest charges on payments made during the extension.

 

The filing extension, and waiver of penalty and interest, will be available to those filing Ohio individual income tax, and the school district income tax for tax year 2020.

 

In addition, the city of Columbus has also announced that they have extended their deadline to May 17 to align with the Federal and Ohio deadlines. It is expected that many cities and local jurisdictions will follow suit.

 

Please note that the first quarter estimated income tax payment for tax year 2021 is not impacted by this extension and must still be made by April 15.

 

 

TAX CONFORMITY PASSES

 

The final version of Senate Bill 18 has been passed by the Ohio House and Senate and now awaits Governor DeWine’s signature. It would conform Ohio with recent changes to federal tax law, including deductibility of expenses from the Paycheck Protection Program and excluding $10,200 in unemployment compensation from income tax.

 

Ohio-specific provisions in S.B. 18 will exclude the 2020 Ohio Bureau of Workers’ Compensation refunds/dividends from CAT; reduce pass-through entity withholding rates and exclude PPP second-draw loans from CAT.

 

The Ohio Legislative Service Commission published this analysis of the bill.

 

Because S.B. 18 is emergency legislation, the changes will be enacted into law immediately upon the Governor’s signature.

 

 

SOURCES: Ohio Department of Taxation, Ohio Society of CPAs

IRS Extends Filing and Payment Deadline

Kathleen Hargrove on March 18, 2021

The Treasury Department and IRS announced Wednesday that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021.

 

The IRS states that they will be providing formal guidance in the coming days.

 

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

 

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief.

 

If you need additional time to file beyond the May 17 deadline, please work with your Whalen advisor to request a filing extension until October 15.

 

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

 

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments.

 

 

State Tax Returns:

 

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax.

 

State filing and payment deadlines vary and are not always the same as the federal filing deadline.

 

Currently, the state of Ohio has not announced an extension and still lists their due date as April 15, 2021. We will keep you informed if Ohio and other states follow suit with this extension and notify you as that information becomes available.

 

 

For more information or further assistance with your filing, please contact your Whalen advisor.

 

 

SOURCE: IRS.gov

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