New Exclusion of up to $10,200 of Unemployment Compensation

[Opus 17]

@shaleeamadeo 

The problem is that unemployment compensation is only excluded from income tax up to $10,200. The income still counts when determining your eligibility to make IRA contributions, taxability of social security benefits, to qualify for the earned income credit, and a bunch of other things. So simply making the adjustment you suggest will not correct for all of those other factors, and could lead to an incorrect tax return if you fall into one of those situations.  

[lindaforish]

Once it's implemented in Turbo Tax,  your software should automatically update the next time you go in there.  At least, that's how it's worked in the past.

[lindaforish]

Thank you.  That info is very helpful.

[writermom3]

Here's a tag-on question: my college-age son (still dependent on our taxes) collected unemployment insurance in 2020 but the IRS is taxing him at our rate b/c he made too much money. So my question is: with this new law, will his first $10k of unemployment be free from federal tax?

[macuser_22]

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@writermom3 wrote:

Here's a tag-on question: my college-age son (still dependent on our taxes) collected unemployment insurance in 2020 but the IRS is taxing him at our rate b/c he made too much money. So my question is: with this new law, will his first $10k of unemployment be free from federal tax?

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That is one of the questions that the IRS will need to address with regulations.   The 8915 instructions just say more than $2,100 of unearned income.   It does not say that the unearned income must be taxable.  And unemployment is unearned income.

[philmckracken911]

People, people let’s relax. I know we want to get money back from the government before it runs out , And as soon as the professional lacerte version gets the update I will post that alert on this thread. 

in the meantime just add this new exclusion as a negative number to Schedule 1 Line 8 and you will see what the tax effect is going to be. But don’t file until they fix the program. 

[dergib]

Question.  Unemployment income is included in the AGI.  What if the unemployment income causes the total wages of the married couple to go over the 150k?  Without the unemployment income wages are below.  Will any relief be provided?

[KrisD15]

The details are still being worked out but it looks like up to 10,200 will be excluded from Adjusted Gross Income which may open availability to credits. 

Please use the link below for more information and to get an email for updates. 

More information about this tax change from TurboTax

[cloudywithachance]

@dergib The bill states the following:

“(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.

Similarly, the IRS instruction revision say, "If your modified adjusted income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021 excludes from income up to $10,200 of unemployment compensation paid to you in 2020."

I'm reading both to mean the AGI has to first be below $150k in order to allow up to $10.2k of UI to not be taxable.  So I think if the taxpayer is above $149,999.99 AGI counting the UI, then it's not eligible.  I've heard some people talking about MFS instead of MFJ to be able to take advantage of this.

[Opus 17]

There is nothing in the text of the law or the IRS instructions for manually completing your return that suggest a phase out.  You may want to wait for all the changes to be implemented in the program, as the unemployment provision of the law has some complicated sub-conditions, but I would not get my hopes up.  

[Nancy F]

Where is the exclusion worksheet?? When will proseries have the worksheet on the tax program?

[DoninGA]

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@Nancy F wrote:

Where is the exclusion worksheet?? When will proseries have the worksheet on the tax program?

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See this TurboTax support FAQ for information for the unemployment compensation exclusion - https://ttlc.intuit.com/community/tax-topics/help/how-do-i-claim-the-new-unemployment-benefits-in-tu...

Also see this IRS statement - https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

[Hal_Al]

See, the IRS worksheet at   https://www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemploym... for how to calculate the correct amount to enter.

[maz167]

Due to my wife receiving unemployment, our AGI was pushed over 150,000.  Will we be able to exclude the 10,200 as without the 10,200 our AGI would be under 150,000.

[Butno]

So there is no printable workshee?