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San Antonio tax help lawyerDo you owe 2020 income taxes even though the IRS is now not taxing the first $10,200 of unemployment income? What to do and not to do.

Last week we discussed the extent to which unemployment income is not taxed because of the American Rescue Plan Act. Generally, you don’t pay federal (and possibly state) income tax on the first $10,200 in benefits you received in 2020. Section 9042(a) of the Act. (See our last blog post about qualifying for this, and other details.)

Let’s get into two significant practical problems you may still have in spite of this substantial benefit:

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You can put a “preferential payment” to work for you if you owe a “priority” debt—back child or spousal support, or recent income taxes.

Our last blog post was about how you can benefit from a “preference” in your bankruptcy case. A “preference” is a payment you made to a creditor (voluntarily or involuntarily) during the 90-day period before filing (or sometimes the 1-year period), which, under certain circumstances, your trustee can force the creditor to repay. The creditor doesn’t pay the preferential payment back to you but rather to your bankruptcy trustee. The trustee then distributes that money among your creditors. The way you benefit is when most of that money going to a debt that you need and want to be paid.

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