topic does the new UCE reduce MAGI for IRA contribution limits? in Get your taxes done using TurboTax

does the new UCE reduce MAGI for IRA contribution limits?

TheJobDr — Tue, 23 Mar 2021 20:53:02 GMT

does the new UCE reduce MAGI for IRA contribution limits?

Re: does the new UCE reduce MAGI for IRA contribution limits?

macuser_22 — Tue, 23 Mar 2021 20:59:45 GMT

No. It specifically says it will not.

Re: does the new UCE reduce MAGI for IRA contribution limits?

jmm2022 — Fri, 02 Apr 2021 20:14:26 GMT

I spoke to an IRS agent last week that told me the UCE should not be included in MAGI. I found this info also on another site stating that the IRS had reversed an earlier decision that would have included this. I really think that TurboTax needs to investigate this further.

Re: does the new UCE reduce MAGI for IRA contribution limits?

jmm2022 — Fri, 02 Apr 2021 20:28:36 GMT

I found the following message at: https://www.atxcommunity.com/topic/25525-irs-changes-their-mind-on-uce/

... the unemployment compensation exclusion for 2020 passed as part of the American Rescue Plan Act of 2021 and found at IRC §85(c). Now it turns out that, due to an IRS change of heart on how to read IRC §85(c)(2)(B), your software may now be subjecting unemployment to tax the IRS has now decided is not to be subject to such tax.

On March 12, 2021, the IRS provided updated instructions on their website for preparing returns that have excludable unemployment compensation.[1] However, on March 23, 2021 the IRS made a significant change in those instructions.[2]

Originally the IRS instructions had taxpayers include the unemployment compensation in determining the modified AGI (reading “without regard to this section” in IRC §85(c)(2)(B) to mean without regard to the exclusion at IRC §85(c)) but now they have decided that means without regard to any unemployment compensation covered by §85"

Re: does the new UCE reduce MAGI for IRA contribution limits?

macuser_22 — Fri, 02 Apr 2021 20:34:40 GMT

@jmm2022 wrote:

I spoke to an IRS agent last week that told me the UCE should not be included in MAGI. I found this info also on another site stating that the IRS had reversed an earlier decision that would have included this. I really think that TurboTax needs to investigate this further.

The Rescue Act §9042 law specifically says that the unemployment credit is to be applies *after* calculating the MAGI for retirement contributions. It is not the IRS's decision, it is the law that Congress passed.

Re: does the new UCE reduce MAGI for IRA contribution limits?

macuser_22 — Fri, 02 Apr 2021 20:51:09 GMT

@jmm2022 wrote:

I found the following message at: https://www.atxcommunity.com/topic/25525-irs-changes-their-mind-on-uce/

... the unemployment compensation exclusion for 2020 passed as part of the American Rescue Plan Act of 2021 and found at IRC §85(c). Now it turns out that, due to an IRS change of heart on how to read IRC §85(c)(2)(B), your software may now be subjecting unemployment to tax the IRS has now decided is not to be subject to such tax.

On March 12, 2021, the IRS provided updated instructions on their website for preparing returns that have excludable unemployment compensation.[1] However, on March 23, 2021 the IRS made a significant change in those instructions.[2]

Originally the IRS instructions had taxpayers include the unemployment compensation in determining the modified AGI (reading “without regard to this section” in IRC §85(c)(2)(B) to mean without regard to the exclusion at IRC §85(c)) but now they have decided that means without regard to any unemployment compensation covered by §85"

The law seems clear-

“(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 section" refers to the "APPLICATION" of section 9042 of the Act - not to §85 of the IRC,

To read it otherwise makes (A) above irreverent and Congress does not write law with irrelevant provisions.