While i agree with the majority of your reply with respect to how 'taxable' income is treated or should be treated, the fundamental disagreement is whether this income is legally required to be included if eligible for the tax break. The retroactive nature of this provision is where the problem comes into play. For instance, if Congress is allowed to retroactively change tax laws each year, it would be impossible for anyone to accurately estimate taxable income for the year with respect to the PTC, as changes to what is considered taxable or non-taxable would move people in and out of the PTC eligible range after the fact. In my case, every December, i either take a withdrawal from my Retirement account or add to it so that my MAGI is in range for the PTC. By having retroactive changes the following year, taxpayers are prevented the ability to plan or accurately estimate AGI. This is fundamentally unfair. In the case of this last minute provision to exclude a portion of unemployment from taxes, i believe most everyone would agree that the intent of Congress was for the tax break to benefit more of the unemployed taxpayers by either increasing their refund or reducing the amount owed. It certainly was not meant to be punitive. And as it is only punitive to a very small population of taxpayers (those that forego the monthly PTC subsidies in lieu of a year-end tax credit AND whose income fell out of the PTC range when the retroactive tax break was applied), i believe this unintended consequence has not been addressed. A few days ago, the IRS provided guidance with respect to the PTC and unemployment tax break when it said that if your income fell out of range (due to the unemployment waiver or any other reason), you would not have to repay any excess Premium Tax Credit that you received in 2020, however, it has not yet addressed those that did not receive the advance subsidies. In other words, if your tax credit was $12,000 and you took $1000 per month last year in the form of advanced credits AND your income fell out of range because of the unemployment waiver, you do not have to pay back anything, however, the taxpayer that received the $12,000 tax credit at time of filing would be required to pay back the $12000? Personally, i filed my taxes on 3/1 with Turbo Tax (prior to the bill passing) and was eligible for a Premium Tax Credit of $12,000. My return was processed and i received my refund. Now, on 4/14, when i go in to Turbo Tax to amend my return, it shows no refund and the Premium Tax Credit removed after the Turbo Tax auto recalculate. Basically, i cannot amend my taxes because the refund amount is incorrect. I just cannot see how legally the IRS can come back and say, 'yeah, we know that you filed your returns correctly on 3/1 and you were eligible for the tax credit, but a new bill was passed that changed your taxable income for the previous year, so you have to return the $12000'...especially since they already absolved those who took the credit in the form of advanced subsidies in 2020.
It will be interesting to see how this plays out, but in the meantime, i spent an hour and a half on the phone with the IRS this afternoon discussing this particular issue and the concerns i have with the retroactive nature of how this is being applied. This issue has been assigned to the Systemic Tax Advocacy Committee (case #48272) and they have formed a working committee to figure this out. Based on my conversation with the committee lead, they agree that the intent of the provision was not to be punitive and that additional guidance is likely forthcoming. However, I believe that as the IRS works through the Unemployment returns, they will see this issue pop up and will be forced to address it. I just don't see how the IRS can make people start returning refunds when the returns were filed correctly (prior to the bill passing in March). Retroactive changes to tax law becomes very dicey. With that being said, this is really a moot discussion for me, because as i mentioned above, i have to amend my return for additional income which puts me back in the PTC range (K-1 income/capital gain). Although, i cannot amend the return with the recalculated numbers currently showing in Turbo Tax.
Thank you for taking the time to reply to my original post. When/if i hear back from the IRS regarding additional guidance , i will post here.
