topic Unemployment tax exclusion and AGI in Deductions & credits

Unemployment tax exclusion and AGI

Sprocket60 — Sun, 21 Mar 2021 05:04:49 GMT

The IRS states they are treating the first $10,200 of unemployment as excluded income. Does the $10,200 still count towards your AGI?

Example: The income on a 2020 return was $50,000 married filing jointly. Both parties had unemployment and now $20,400 of that is excluded. Does this drop the new AGI down to $29,600 and therefore are now potentially eligible for something like the EITC?

Re: Unemployment tax exclusion and AGI

Sprocket60 — Sun, 21 Mar 2021 05:05:26 GMT

deleted, added example to original post.

Re: Unemployment tax exclusion and AGI

rjs — Sun, 21 Mar 2021 05:25:51 GMT

Your AGI will be reduced by the amount of unemployment income that is excluded. This could possibly make you eligible for the EITC.

Although the excluded unemployment income is not included in your AGI, the law specifies that the excluded unemployment income must be added back when calculating modified AGI for a number of specific tax benefits other than EITC.

Re: Unemployment tax exclusion and AGI

nancvargas — Sun, 21 Mar 2021 06:18:28 GMT

But how do you add it to your tax forms. I went through the whole TurboTax program and it does show where to enter the Unemployment tax exclusion. Confused!

Re: Unemployment tax exclusion and AGI

Sprocket60 — Sun, 21 Mar 2021 07:43:20 GMT

Is this something you think would be taken into account when the IRS is calculating the auto refund? Or are they focused solely on the unemployment?

If they’re just refunding the unemployment, would I wait for the refund then amend my tax return for the EITC?

Re: Unemployment tax exclusion and AGI

rjs — Sun, 21 Mar 2021 15:05:40 GMT

@nancvargas wrote:

But how do you add it to your tax forms. I went through the whole TurboTax program and it does show where to enter the Unemployment tax exclusion. Confused!

@nancvargas TurboTax has not yet been updated for the unemployment exclusion, and they have not given a date when it will be updated. The American Rescue Plan Act was only signed a little over a week ago.

Re: Unemployment tax exclusion and AGI

rjs — Sun, 21 Mar 2021 15:08:29 GMT

@Sprocket60 wrote:

Is this something you think would be taken into account when the IRS is calculating the auto refund? Or are they focused solely on the unemployment?

We can only guess at the point, and my guess about what they will do doesn't mean anything. The IRS has not provided any information about what they are going to do. Questions like this will probably be cleared up when the IRS does provide some information.

Re: Unemployment tax exclusion and AGI

sprater18 — Mon, 29 Mar 2021 22:59:08 GMT

Are their any updates.. I have a tax return that has Income, Social Security and Unemploment..Received the 10,200 Tax Break.. The AGI is high because of the unemployment amount so its taxing SS at 50% and it shows an amount due for Federal.. The AGI should be lower but turbo tax is not showing that.. So just wondering what we should do.. Should we wait?? Thanks

Re: Unemployment tax exclusion and AGI

gloriah5200 — Mon, 29 Mar 2021 23:14:56 GMT

Unemployment extension

The first $10,200 of unemployment payments are now tax-free for households with an annual income under $150,000.

If you’ve already filed your 2020 return, you should not do anything. The IRS will refigure your taxes and send any refund amount directly to you.

Go here for more unemployment updates as they become available.

Unemployment FAQs

How will unemployment benefits affect my taxes?

The IRS, and most states, consider unemployment payments as taxable income. This means that you have to pay tax on these payments and report them on your return. With this new law, if your household income is less than $150,000, the first $10,200 of unemployment will be tax free, but any amount you receive above that will be taxed.

To help at tax time, consider withholding taxes from your unemployment payments up front. You can usually do that by marking a checkbox or choosing that option when you’re filling out your request.

When will this update be reflected in TurboTax? When can I file my taxes?

If you haven't filed your 2020 tax return, yet, go ahead and do so. TurboTax will guide you through claiming these additional unemployment benefits.

If you don't see the change in the version of TurboTax you are using, then you could wait a little longer to file your return. Since IRS extended the filing and paying deadline this year until May 15, then that should give IRS some additional time to work with the software developers on the best way to cover that in the 2020 return.

You should wait as long as possible giving IRS time to update their systems and the software developers to file your 2020 return if you haven't already done so.

If you make manual changes in the return, then you will probably be required to paper file the return. IRS is still processing 2019 paper returns from last year. It would be better to be able to wait and e-file your return because e-filing is so much faster and more accurate.

If you decide to file before the systems are all updated, then IRS will adjust your return for you.

Re: Unemployment tax exclusion and AGI

Critter-3 — Mon, 29 Mar 2021 23:30:49 GMT

The direct answer is ... the IRS is going to recompute the ENTIRE return when they fix the unemployment situation ... do NOT send in an amended return.

Re: Unemployment tax exclusion and AGI

Crystal_S — Mon, 29 Mar 2021 23:45:46 GMT

I have a similar situation as sprater18: I see the update for the Unemployment Tax Exclusion has been updated in my tax return but I expected the reduction of $10,400 in Unemployment Compensation would also affect the calculation of taxable Social Security Benefits (and Premium Tax Credit- Form 8962 & Credit for Retirement Contributions- Form 8880), but it still shows the full amount of Unemployment Compensation being included in the calculation. Is that correct?

Re: Unemployment tax exclusion and AGI

rjs — Tue, 30 Mar 2021 03:19:55 GMT

@sprater18 @Crystal_S

The section of the American Rescue Plan Act that provides for the exclusion of $10,200 of unemployment compensation specifically says that the excluded unemployment income is NOT to be subtracted from AGI when calculating the taxable amount of Social Security benefits. So TurboTax is doing the Social Security calculation correctly according to the new law, and it is not going to change. The exclusion of unemployment income does not change the amount of Social Security that is taxable.

Re: Unemployment tax exclusion and AGI

sprater18 — Tue, 30 Mar 2021 05:32:57 GMT

@rjs

I am not sure about that.. Its not just about SS It should be about the taxable income and that should be lowered if there is a 10,200 adjustment.. I am just really confused

Re: Unemployment tax exclusion and AGI

A69_R19 — Tue, 30 Mar 2021 06:11:29 GMT

Unemployment is considered unearned income so it will not reduce your SS benefit, however SS income does count as income when calculating your UI claim.

Re: Unemployment tax exclusion and AGI

JohnW152 — Tue, 30 Mar 2021 14:02:35 GMT

When figuring the excludable amount of Social Security benefits, taxpayers are to include the full amount of unemployment benefits reported on Schedule 1, line 7, unreduced by any exclusion amount.

See the second Caution under Line 7, Unemployment Compensation on the IRS's New Exclusion of up to $10,200 of Unemployment Compensation page.

Re: Unemployment tax exclusion and AGI

Glitch1 — Thu, 29 Apr 2021 22:05:49 GMT

My income is less than 150 before Unemployment but more after it. Any ideas how this new law will effect me?

Re: Unemployment tax exclusion and AGI

Critter-3 — Thu, 29 Apr 2021 22:08:25 GMT

Open your return in the program to see how the changes affected your bottom line of the return. Then since your AGI was below the $150K mark you may get more or some stimulus credit on the return and will trigger a "plus up" of the third stimulus payment to be released.

Re: Unemployment tax exclusion and AGI

Life-Is-Good — Mon, 10 May 2021 20:23:16 GMT

I’ve been wondering the same thing and can’t really find info out. Have you found any answers?

Re: Unemployment tax exclusion and AGI

rjs — Mon, 10 May 2021 20:50:16 GMT

@Life-Is-Good wrote:

I’ve been wondering the same thing . . .

@Life-Is-Good The same thing as what? This is a long, old thread that discusses several different topics. And we can't tell which post you are replying to.

If you are wondering about your eligibility for the unemployment exclusion, the $150,000 cutoff applies to your AGI not including any unemployment income. So if your AGI, excluding any unemployment, is less than $150,000 you are eligible for the exclusion. The answer posted by LenaH to your question a few weeks ago was wrong.

If you have a different question, I suggest that you post a new question of your own, and give all the details of your specific situation, instead of tagging on to an old and confusing thread.

Re: Unemployment tax exclusion and AGI

Life-Is-Good — Tue, 11 May 2021 02:42:11 GMT

Sorry, my question must not of replied to the right one. But yes, thank you, you answered my question.