Taxable Social Security benefits still includes 2020 unemployment income (but it shouldn't)

[VolvoGirl]

Couple points.   You might be confusing ssi with Social Security.   They are not the same thing.  A lot of times people say ssi when they are getting Social Security.  But ssi actually stands for supplemental security income.  It is different than SS.  You don't get a SSA-1099 for ssi and you do not report ssi on your tax return at all.  So do you get ssi or Social Security or SSDI?

Then we all know unemployment is not earned income.  Why does that matter?   But unemployment is taxable income.  You might be confusing your monthly ss payments with how much is taxable.

There are 2 different things to know about social security. People get them mixed up all the time.

1. Your actual SS checks

If you are over full retirement age your actual ss checks won't be reduced. Otherwise they will actually reduce your payments if you make too much other income in the prior year.  See SS FAQ for working after retirement

https://www.ssa.gov/planners/retire/whileworking.html

2. Income Tax

For any age up to 85% of Social Security becomes taxable when ALL your other income plus 1/2 your social security reaches:

Married Filing Jointly: $32,000

Single or head of household: $25,000

Married Filing Separately: 0

[VolvoGirl]

Also since you keep mentioning earned income.   Are you thinking of when you are an employee on a W2 the employer deducts 6.2% Social Security from your wages.   But they don't deduct that from unemployment or other income like interest and dividends.   That is not the same as paying tax on the Social Security benefit checks you receive.  

Yes you don't pay SS out of unemployment checks but when you start receiving Social Security benefits then all your income is used to determine how much of SS will be taxable (up to 85%).  

Here is IRS Notice 703 form.  It might help you.

https://www.irs.gov/pub/irs-pdf/n703.pdf

You don't enter the 703 on your return.  The 703 is a worksheet for you to see how much of SS is taxable but it can be tricky to fill out and you might not come up with the right amount.

[Brittany8911]

I filed the incorrect amount of income for my 1099 unemployment . For example I claimed $962.00 with no taxes taken out . The correct income is 1071.00 without taxes taken out.  Will I have to change it or will they do it for me. 

[Vanessa A]

You will likely need to Amend Your Return  to make the changes.  However, it is best to wait until your return has been processed just in case they catch the error.  If they do not send you a letter and your return is processed, then you will need to change it.  If they catch it, then you will not need to do anything. 

[Chrys1]

ok, so I am referring to Social Security and in particular the 2020 tax return. I appreciate you clarifying the difference between SS and SSI. However, the issue comes into play for those collecting SS widows benefits. More specifically, the federal government in 2020 under the CARESact exempted $10,200 of unemployment from being included in taxable income. The problem/issue comes in when calculating what percentage of tax you would pay on your SS using the "worksheet." The worksheet is not excluding the $10,200. In speaking with several individuals and even a legal tax agent from the IRS, I was told I needed to file an amended tax return for 2020 (1040X) because the software stated to include it on one end but take it off another end, which did not happen and I was taxed 85%. They did process the return a year ago and nothing has been changed as the IRS said it would be. So, in essence, the federal government excluded the $10,200 on the front end but failed to do so on the SS end. Does that make sense? We were not supposed to include the $10,200 when calculating unemployment, we were supposed to record the deducted amount and none of the software allowed for that so I had to manually go into the data section of my 2020 1040 and change it to reflect the correct amount. When I did that, it changed my EITC and several other items I should have been eligible for but wasn't because the worksheet in the software included the entire amount of unemployment. 

[macuser_22]

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@Chrys1 wrote:

ok, so I am referring to Social Security and in particular the 2020 tax return. I appreciate you clarifying the difference between SS and SSI. However, the issue comes into play for those collecting SS widows benefits. More specifically, the federal government in 2020 under the CARESact exempted $10,200 of unemployment from being included in taxable income. The problem/issue comes in when calculating what percentage of tax you would pay on your SS using the "worksheet." The worksheet is not excluding the $10,200. In speaking with several individuals and even a legal tax agent from the IRS, I was told I needed to file an amended tax return for 2020 (1040X) because the software stated to include it on one end but take it off another end, which did not happen and I was taxed 85%. They did process the return a year ago and nothing has been changed as the IRS said it would be. So, in essence, the federal government excluded the $10,200 on the front end but failed to do so on the SS end. Does that make sense? We were not supposed to include the $10,200 when calculating unemployment, we were supposed to record the deducted amount and none of the software allowed for that so I had to manually go into the data section of my 2020 1040 and change it to reflect the correct amount. When I did that, it changed my EITC and several other items I should have been eligible for but wasn't because the worksheet in the software included the entire amount of unemployment. 

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The CARES act specifically stated that the taxable amount of SS must be calculated *before* excluding the $10,200 unemployment form AGI.   there were 6 other credits that had to be calculated before the exclusion.   Therefore the SS tax is the same whether you had unemployment or not.

[Chrys1]

Yes, but the software used the line with the full amount of unemployment as opposed to the excluded amount I believe line 14 vs line 7? So the IRS said to file the amended return because it was supposed to be just the amount over the $10,200 and not the full amount. 

[Brittany8911]

@Vanessa A @Ok so just wait . They have accepted my return on the 26th of January. When I check the where's my refund tool it just says that my return is being delayed past the normal time frame. I was hoping I didnt have to amend it. Is it possible they can correct it without me doing it or going through any difficult process.

[Chrys1]

This was for 2020 taxes not 2021. 
if you have a delay it could be due to the tax credits?