Received unemplyment benefit. Once we subtract the $10200 the AGI is below the IRA limit but program is not allowing to deduct IRA

[skanthakumar-hot]

We received unemployment benefit last year.  Before deducting $10,200 our AGI was larger than IRA deduction limit. Now it is below the IRA limit once we subtract the $10,200. However TurboTax is not allowing me to deduct that.  What is the issue?

[ee-ea]

The IRS needs to rule on this question," Is AGI with or without the 10,200 UE subtraction ?"

[flytiger]

Your contributions to IRA's must equal or be less than your earned income.

[dmertz · Accepted solution]

TurboTax is behaving correctly.  Section 9042(b)(5) of The American Rescue Plan Act of 2021 requires the calculation of MAGI for this purpose to add back the exclusion for unemployment benefits.

[skanthakumar-hot]

This makes sense.  However, I am unable to find Section 9042(b)(5).  There is no (5) in Section 9042(b)

[dmertz · Accepted solution]

Section 9042(b):

(b) Conforming Amendments.—

(1) Section 74(d)(2)(B) of the Internal Revenue Code of 1986 is amended by inserting “85(c),” before “86”.

(2) Section 86(b)(2)(A) of such Code is amended by inserting “85(c),” before “135”.

(3) Section 135(c)(4)(A) of such Code is amended by inserting “85(c),” before “137”.

(4) Section 137(b)(3)(A) of such Code is amended by inserting “85(c)” before “221”.

(5) Section 219(g)(3)(A)(ii) of such Code is amended by inserting “85(c),” before “135”.

(6) Section 221(b)(2)(C)(i) of such Code is amended by inserting “85(c)” before “911”.

(7) Section 222(b)(2)(C)(i) of such Code, as in effect before date of enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, is amended by inserting “85(c)” before “911”.

(8) Section 469(i)(3)(E)(ii) of such Code is amended by striking “135 and 137” and inserting “85(c), 135, and 137”

[fanfare]

Does the exclusion get added back for purposes of 
EIC and,

Retirement Savings Contribution credit ?

Both are going up on my niece's tax return.

[dmertz]

fanfare, no.  Changes to sections 25B and 32 are not mentioned.