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does the new UCE reduce MAGI for IRA contribution limits?

does the new UCE reduce MAGI for IRA contribution limits?

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5 Replies

does the new UCE reduce MAGI for IRA contribution limits?

No. It specifically says it will not.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
jmm2022
New Member

does the new UCE reduce MAGI for IRA contribution limits?

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.

jmm2022
New Member

does the new UCE reduce MAGI for IRA contribution limits?

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"

does the new UCE reduce MAGI for IRA contribution limits?


@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.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

does the new UCE reduce MAGI for IRA contribution limits?


@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"


**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

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