Amended filing now needed following American Rescue Plan and UI calculations?

[Sailbound88]

When originally announced, the IRS advised that amended returns from early filers were discouraged, suggesting instead that we should claim the deduction in the 2021 tax year.  However, today I read that this direction may change for some of us since the new American Rescue Plan was signed in March.  From the article:

• "'There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return,' the agency said."

If I understand this correctly, those of us with newly adjusted AGIs below $150k should now amend their return since that is a key threshold for several other deductions and stimulus-related programs.

Here are my questions:

• The article also states that "Workers can exclude [UI] aid when calculating their modified adjusted gross income."  Does this mean exclude the entire amount of UI income received or just up to the $10.2k deduction limit?  If it's the latter, does the deduction extend to 20.4k for Married Filing Jointly?
• If new AGI is less than $150k following the UI deduction, will affected filers also now qualify for the stimulus payments and child tax credits that are precluded for those making over that amount?
• Finally, what is the proper guidance for those of us affected by this?  To amend or not to amend?

 I'm hoping that someone with true knowledge on these topics can respond with answers here.  There's a lot of additional potential benefits here, and we need direction on whether filing an amended return makes sense now.  TIA!      

[macuser_22]

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@Sailbound88 wrote:

Here are my questions:

• The article also states that "Workers can exclude [UI] aid when calculating their modified adjusted gross income."  Does this mean exclude the entire amount of UI income received or just up to the $10.2k deduction limit?  If it's the latter, does the deduction extend to 20.4k for Married Filing Jointly?
• If new AGI is less than $150k following the UI deduction, will affected filers also now qualify for the stimulus payments and child tax credits that are precluded for those making over that amount?
• Finally, what is the proper guidance for those of us affected by this?  To amend or not to amend?

 I'm hoping that someone with true knowledge on these topics can respond with answers here.  There's a lot of additional potential benefits here, and we need direction on whether filing an amended return makes sense now.  TIA!      

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1) The maximum amount excluded on the tax return can not be more than $10,200 total for each spouse.

2) Yes, the reduced AGI might make you eligible of other credits.

3) For the other possible credits you need to amend - however, the IRS does not want you to amend for the UE credit rebate.  They should be sending checks in May or June for the UE credit.

Amended returns are currently taking about 6 months to process.

There might be more IRS guidance  coming for how to handle  this.

[Critter-3]

Here are my questions:

• The article also states that "Workers can exclude [UI] aid when calculating their modified adjusted gross income."  Does this mean exclude the entire amount of UI income received or just up to the $10.2k deduction limit?  If it's the latter, does the deduction extend to 20.4k for Married Filing Jointly?   You must wait for the IRS to recalculate your return before you do anything else.  The UI exclusion is up to 10.2 per person not per return.  So if one spouse only had $5K  and the other $15K the max amount to be excluded is 5000 + 10200 for a total of 15200. 

• If new AGI is less than $150k following the UI deduction, will affected filers also now qualify for the stimulus payments and child tax credits that are precluded for those making over that amount?  Again you must wait and only amend after the IRS processes the return.   You only amend if you are adding something new to the return that was not on the original due to income limitations. The IRS will recompute the entire return  but they will not add a form that was not on the return to start with.  

• Finally, what is the proper guidance for those of us affected by this?  To amend or not to amend?  WAIT for the original return to be fully processed and the original/corrected refund has been received or you get a revised bill for a balance due.  Until you know what the IRS changed you do not know what to put on column A of the 1040X.  

[Critter-3]

Read all about it here :   https://www.irs.gov/newsroom/2020-unemployment-compensation-exclusion-faqs-topic-a-eligibility#:~:te....

[Sailbound88]

Excellent remarks and great link - thank you!  Of course, every IRS publication leaves me wtih additional questions (sorry).  From that link:

• You're eligible to exclude the unemployment compensation if it was received in 2020 and your modified adjusted gross income (AGI) is less than $150,000. The modified AGI for purposes of qualifying for this exclusion is your adjusted gross income for 2020 minus the total unemployment compensation you received. (emphasis mine)... To determine if you're under the $150,000 threshold and qualify for the exclusion, subtract all of the unemployment compensation reported on Schedule 1, Line 7, from the amount of your AGI reported on Line 11 of Form 1040..."

It then goes on to say the following:

• "If you're married, the exclusion can apply to you and a separate exclusion can apply to your spouse. If you and your spouse file a joint return and your joint modified AGI is less than $150,000, you should exclude up to $10,200 of your unemployment compensation and up to $10,200 of your spouse's unemployment compensation."

We are Married Filing Jointly.  I drew zero UI in 2020 and wife took appx $27k.  So, are the following assumptions correct?

• Per first quote above, the IRS will deduct the ENTIRE amount of her UI comp to determine AGI.  If so, that would bring us below the $150k threshold, including the $10,200 UI deduction qualification.
• Per the second quote, we can't write off all of her UI comp for taxation purposes, but we can receive the $10.2k deduction on her UI benefits.  (assuming my first statement is correct, of course!) 

Do I have this right?  And, yes, I hear you about waiting for the IRS to finalize calculations prior to any amendment - thanks for your advice here, and I will do so. 

[DawnC · Accepted solution]

You can start the amendment in TurboTax to see what the changes are and then cancel the amendment and that will return your Form 1040 to the state it was in before you started the amendment.    And yes, your assumptions are correct.    All unemployment will be subtracted from AGI to determine modified AGI for purposes of determining whether or not you qualify for the exclusion.   

Since you had no unemployment income, the max you will be able to exclude on this 2020 tax return is $10,200 of your wife's unemployment compensation.   The IRS has stated they plan to start issuing out plus payments in July.   If you start the amendment to see the changes, make sure you go back through the stimulus questions to determine if you qualify for additional payments.  Search for stimulus in the search field and use the Jump to stimulus link to be taken to the questions.  

[Sailbound88]

Great answer, and thanks for suggesting running the amendment in TT as a way to determine what outcomes would look like without actually filing it - even though I look forward to that process like I look forward to a root canal, I'm eager to see what those results.  Thank you --and all-- for the quick and thoughtful responses here!