Can i refuse to reduce my income by the $10,200 UCE?

[Stanleyrite]

For reasons that are my own, I do not want to decrease my Unemployment income by this $10,200 and instead, I want to pay the taxes on all of my Self Employment income.  How can I remove this amount?

[DawnC]

TurboTax automatically excludes unemployment income of up to $10,200 if your adjusted gross income is below certain thresholds.   However, this exclusion only affects your unemployment income.  It does not affect your self-employment income, so you will still be paying taxes on the total of your self-employment income.   It is still income to you, that portion is just not included as taxable income on your tax return.  

You pay both ordinary income tax and the Self-Employment Tax on your self-employment income.   Unemployment is not considered self-employment income.  

[Stanleyrite]

Well that’s my fault. It should have said I want to pay all the taxes on my UNEMPLOYMENT income. Not self employment. 

[DoninGA]

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@Stanleyrite wrote:

Well that’s my fault. It should have said I want to pay all the taxes on my UNEMPLOYMENT income. Not self employment. 

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You cannot remove the unemployment compensation exclusion amount from your tax return.  The exclusion is part of the Internal Revenue Code of the US for tax year 2020.

[dmertz]

In part, section 9042(a) of the American Rescue Plan Act of 2021 amends section 85 of the tax code to read:

(c) Special Rule For 2020.—

“(1) IN GENERAL.—In the case of any taxable year beginning in 2020, if the adjusted gross income of the taxpayer for such taxable year is less than $150,000, the gross income of such taxpayer shall not include so much of the unemployment compensation received by such taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200.

Note the phrase "shall not include."  This wording provides no option to refuse to reduce your AGI by the $10,200 UCE.

[Stanleyrite]

Why would they mandate something that affects tax planning?  Seems rather short sited. 

[dmertz]

I figured that it had something to do with health insurance.  The only tax reason that I could think of where it would be advantageous to not exclude the unemployment compensation is if excluding it would disqualify you from receiving a 2020 Premium Tax Credit because doing so brings your 2020 MAGI below 100% of the federal poverty line and you received no Advance Premium Tax Credit for 2020.  (Probably an unintended side effect of this exclusion.)

I'm not sure how reducing your 2020 MAGI would affect the cost of 2021 or 2022 health insurance since the application for APTC requires you to estimate your 2021 and 2022 MAGI.  In your estimate of 2021 or 2022 MAGI you would not exclude unemployment compensation.

[Stanleyrite]

I would give you that answer in a private message if I could figure out how to send one. 

[SweetieJean]

What you are suggesting is akin to refusing to take the Standard deduction or itemized deductions.  It's the law, so you have to do it.  If you are objecting on moral grounds, why not donate your tax savings to a charity of your choice?

Yes, these last minute and retroactive tax law changes make tax planning difficult, but COVID has changed all of our lives in many ways.

[Terminal]

Figured out