Q. My question is does the $6,000 contributed in January of 2020 partially offset the $10,000 withdrawn later during 2020 (i.e. will our untaxed income amount for 2020 be $10,000 or $4,000)?
A. The answer is no, as far as the tax forms are considered. The $10,000 withdrawal is shown on form 8606, but the $6000 contribution is not shown anywhere on the forms*. Whether FAFSA will accept that, you'll have to ask them. Common sense says they should.
Q. Unfortunately, since I'm holding my return until TurboTax figures out how to work the $10,200 UI exemption into the program I don't think I can view how this will appear on my submitted 1040.
A. Although TurboTax (TT) has not yet updated the software to do that, the IRS has issued instructions, so TT does know what to do, So, far we haven't heard when. There do not appear to be any form changes needed.
Any workaround involves some risk of error That said, if you really can't wait, this work arounds appears to put it in the right place, with the right wording:
In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in Home & Business)
Wages & Income
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income
- On the next screen, click yes
- On the next screen, you'll get blanks to enter the amount and a description. For the amount enter with a minus sign: -10200. For description type UCE(10200). It will go on line 8 of Schedule 1 as a deduction (-).
That assumes you meet the income restrictions and you’re entitled to the full $10,200 and your spouse doesn’t also have unemployment. See the worksheet at: https://www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemploym...
*If you claim the Retirement savers Credit, the $6000 contribution will show on form 8880. In addition, the TT worksheets will show the contribution, which FAFSA might accept.
