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No. It is not TurboTax, it is the IRS ruling. Here is how the law reads as below. Section 222 relates to tuition.
“(1) IN GENERAL.—In the case of any taxable year beginning in 2020, if the adjusted gross income of the taxpayer for such taxable year is less than $150,000, the gross income of such taxpayer shall not include so much of the unemployment compensation received by such taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200.
“(2) APPLICATION.—For purposes of paragraph (1), the adjusted gross income of the taxpayer shall be determined—
“(A) after application of sections 86, 135, 137, 219, 221, 222, and 469, and
“(B) without regard to this section
This seems to describe how AGI is calculated for the unemployment credit eligibility. How is the lifetime learning credit income eligibility calculated? If $10,200 is removed from my income, I am eligible for the lifetime learning credit.
Thank you @ColeenD3 !
No. It seems reasonable that it is the case, but the IRS is giving an exclusion for the purpose of not paying tax on the unemployment, not so that the MAGI makes other things such as education credits, taxability of social security, passive activity losses, adoption assistance, just to mention a few, provide more tax benefits.
kylevv,
While the rather terse prior replies seemed reasonable, I see that, according to
March 23rd IRS - unemployment not counted towards ... (intuit.com)
the unemployment compensation does (a) reduce your Adjusted Gross Income (AGI) and (b) does not increase your Modified Adjusted Gross Income (MAGI). IRS Publication 970 (https://www.irs.gov/pub/irs-pdf/p970.pdf) provides the details on how to calculate MAGI from your AGI for the Lifetime Learning Credit and neither it, nor the online updates page for that publication, mention anything about unemployment compensation.
So, as that cited posting indicated, you may want to wait for a bit and, if prior to May 17, no fix is in place, go ahead and file an extension form with payment for the figure TurboTax shows due at that point so that when you later file by October 15, you will get a refund of the overpayment.
The $10,200 unemployment exclusion does reduce your AGI. The reduced AGI is used to calculate the income limit for the Lifetime Learning Credit. I tested this and TurboTax seems to be doing the calculation correctly for the Lifetime Learning Credit. So you need to look more carefully at what is happening on your tax return.
Look at the actual tax forms, not the summary or review screens in TurboTax. TurboTax Online is somewhat limited in this respect, but you can preview your Form 1040 and Schedule 1. See the following FAQ for instructions.
How do I preview my TurboTax Online return before filing?
First make sure that you are actually getting the unemployment exclusion. It should appear as a negative number on Schedule 1 line 8. Then look at Form 1040 line 11. That's your AGI after subtracting the unemployment exclusion. Is it less than $138,000?
@rjs Thank you!
I previewed the form, line 11 on my Form 1040 IS less than $138,000
Yet, I am not eligible for the lifetime learning credit with this notice 'income exceeds $138,000'
@hbl3973 Thank you for the reply!
I spent about 2 hours on the phone with a TT CPA and am confident all my numbers are correct. I am concerned because I have not seen a support thread here that recognizes this issue. Should I feel confident in waiting for an update if this is not a known issue?
I'll see what I can do to raise this issue with the TurboTax folks.
There is indeed a bug here, and it's a bit weird. If your AGI (on a joint return) is $127,800 (which is &138,000 - $10,200) or less, TurboTax correctly uses the reduced AGI from Form 1040 line 11 in calculating the Lifetime Learning Credit on Form 8863. The correct amount on Form 8863 is what made me think that TurboTax was doing it correctly. But before completing Form 8863, TurboTax does an internal calculation to determine whether you are eligible for the Lifetime Learning Credit. Apparently that internal calculation, which we can't see, uses your AGI before subtracting the unemployment exclusion, so it concludes that you are not eligible for the Lifetime Learning Credit, and never fills out Form 8863, where the correct reduced AGI would be used.
This bug would only affect a small number of people whose income is in a very narrow range, and who are claiming an education credit. That's probably why you haven't seen any other reports of the problem.
hbl3973 has alerted the forum moderators to the problem. At this point we have no idea how long it will take to get it fixed. If it looks like it's going to take a while, you can file an extension by May 17 that will give you until October 15 to file your tax return. However, the extension does not extend the time to pay. If you owe tax, you would have to pay by May 17 to avoid a penalty, even if you don't file until later.
One of the moderators has responded that this problem is already under investigation by the software team. That's all we know right now, but at least you know that TurboTax is aware of the issue.
Hello!
is there any update on this?
I entered all of my information into another tax service platform and my return is much larger due to this bug. I’d rather not file with that servicer and instead continue with turbo tax as I have for several years.
Hello!
is there any update on this?
I entered all of my information into another tax service platform and my return is much larger due to this bug. I’d rather not file with that servicer and instead continue with turbo tax as I have for several years.
The latest feedback from TurboTax suggests that this is not going to get fixed before the May 17 filing deadline.
This bug appears to be fixed in today's TurboTax update (June 10, 2021). If you are using TurboTax Online it has been updated automatically. If you are using the CD/Download TurboTax software be sure to install the latest update.
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