TurboTax Update - Taxable Social Security Calculation Not Correct?

[syoung123]

Hello, I got the desktop update this morning and re-ran the tax file.  The taxable social security does not appear to include the unemployment tax relief of $10,200.  Line 3 of the SS Benefits Worksheet says to add Form 1040, 1, 2, 2b, 3b, 4b, 5b, 7 and Schedule 1, line 9.  Schedule 1 line now includes the $10,300 credit for the tax break.  When I added up the amounts in these lines, the SS worksheet total on line 3 does not equal to the added total with a difference of $10,200.  Please advise.

[cbco7]

The IRS calculation for taxable Social Security (along with some other items) uses the total unemployment paid amount. In other words, the $10,200 exclusion does not apply to the taxable Social Security calculation.  Worksheet instructions need to be updated.

Reference this post:

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/unemployment-exclusion-...

[syoung123]

Thank you.  So the instruction on line 3 on the social security benefits worksheet is not correct, and I need to exclude the $10,200 to determine the amount of line 3 (which will be higher by $10,200) then.

[DianeW777]

Yes. You do NOT exclude the portion of the unemployment that is allowed to be excluded for personal income tax.  It is NOT allowed to be excluded when determining your taxable social security amount.

This IRS page will provide specific details about this situation. New Exclusion of Unemployment Benefits

[syoung123]

Thank you for the information.  Per the excerpt from the link, "New Exclusion of up to $10,200 of Unemployment Compensation", the SS benefits worksheet line 3 says to add Form 1040 line 1,2b,3b,4b,5b, 7 and 8.  It doesn't say from schedule 1.  Also, line 8 on Form 1040 says "other income from schedule 1, line 9", which would include the $10,200 credit/tax break.  I agree that the $10,200 should be excluded from calculating the taxable SS income based on your reply and other posts that I saw, but neither the SS worksheet, nor Form 1040 appears to indicate the $10,200 needs to be excluded in this link.  Please advise.  Thank you.

When figuring the following deductions or exclusions from income, if you are asked to enter an amount from Schedule 1, line 7 enter the total amount of unemployment compensation reported on line 7 (unreduced by any exclusion amount) and if you are asked to enter an amount from Schedule 1, line 8, enter the amount from line 3 of the Unemployment Compensation Exclusion Worksheet. See the specific form or instructions for more information. If you file Form 1040-NR, you aren’t eligible for all of these deductions. See the Instructions for Form 1040-NR for details.

- Taxable social security benefits (Instructions for Form 1040 or 1040-SR, Social Security Benefits Worksheet)

[syoung123]

Also, what about the following:

1.  passive income of up to $25,000 allowance on line 7 of Form 8582, Passive Activity Loss Limitation - Would the $10,200 credit be excluded in calculating the MAGI on line 7 (So the MAGI would be higher)?

2.  the taxable income used to determine the qualified business income deduction on line 11 of Form 8995, QBI Deduction Simplified Computation - Would that include the $10,200 credit?

Thank you.

[DianeW777]

To be clear here are the IRS instructions about the social security taxable income and the unemployment benefit exclusion. You two questions above are also answered here for you.

When figuring the following deductions or exclusions from income, if you are asked to enter an amount from Schedule 1, line 7 enter the total amount of unemployment compensation reported on line 7 (unreduced by any exclusion amount) and if you are asked to enter an amount from Schedule 1, line 8, enter the amount from line 3 of the Unemployment Compensation Exclusion Worksheet.

• Taxable social security benefits (Instructions for Form 1040 or 1040-SR, Social Security Benefits Worksheet)
• The deduction of up to $25,000 for active participation in a passive rental real estate activity (Form 8582)
• QBI is not mentioned so therefore, at least for now, it will still use taxable income to determine the allowable deduction.
  • This IRS page as not been updated since the American Rescue Plan Act has passed.

[syoung123]

Thank you again for your reply.  Line 3 of the SS benefits worksheet indicates only the Form 1040 lines (1,2b,3b,4b,5b,7, and8).  It does not say to use any lines on Schedule 1.  And line 8 of Form 1040 is from line 9 of Schedule 1, which now includes the 10,200 credit.  But I think you are right that the taxable SS income would not take into consideration of the 10,200.  It is just that the Exclusion instructions are still not clear to me.

So to summarize, please confirm the followings:

- social security taxable income - do not include the $10,200 credit; the $ on line 3 of the SS benefits worksheet generated by TurboTax is correct.

- passive income limit - do not include the $10,200 credit; the $ (MAGI) on line 7 in Form 8582 generated by TurboTax is correct

- taxable income to determine QBI deduction - includes the $10,200 credit since it is based on the adjusted gross income on line 11 in Form 1040 (which is lowered by the $10,200 credit); so the taxable income on line 11 in Form 8995 generated by TurboTax is correct.

Thank you.

[jmosner]

I have spoken to Turbotax tax experts, Turbotax CPA, Turbotax technical person, as well as someone at the IRS. All agree that the the unemployment waivered amount should not be included in the calculation for taxable social security. By adding the non taxable unemployment in this calculation it effectively takes away or greatly reduces the waiver. A representative from IRS told me that the tax software companies have not updated their software to account for this in their social security worksheet, line 3.

[cbco7]

From instructions posted on the IRS website as of 4/2/2021. (As mentioned earlier, the Social Security Benefits Worksheet instructions are not correct, should say Schedule 1, line 7, not line 9.)

"When figuring any of the following deductions or exclusions, include the full amount of your unemployment benefits reported on Schedule 1, line 7 (unreduced by any exclusion amount): taxable social security benefits, IRA deduction, student loan interest deduction, nontaxable amount of Olympic or Paralympic medals and USOC prize money, the exclusion of interest from Series EE and I U.S. Savings Bonds issued after 1989, the exclusion of employer-provided adoption benefits, the tuition and fees deduction, and the deduction of up to $25,000 for active participation in a passive rental real estate activity. See the specific form or instructions for more information. If you file Form 1040-NR, you aren’t eligible for all of these deductions. See the Instructions for Form 1040-NR for details."

https://www.irs.gov/forms-pubs/new-exclusion-of-up-to-10200-of-unemployment-compensation

[syoung123]

Hello, thank you for providing the link.  I opened the link but I am no seeing the quote that you have in you post.  I saw the following:

When figuring the following deductions or exclusions from income, if you are asked to enter an amount from Schedule 1, line 7 enter the total amount of unemployment compensation reported on line 7 (unreduced by any exclusion amount) and if you are asked to enter an amount from Schedule 1, line 8, enter the amount from line 3 of the Unemployment Compensation Exclusion Worksheet. See the specific form or instructions for more information. If you file Form 1040-NR, you aren’t eligible for all of these deductions. See the Instructions for Form 1040-NR for details.

• Taxable social security benefits (Instructions for Form 1040 or 1040-SR, Social Security Benefits Worksheet)

The form 1040 instructions SS benefits worksheet line 3 refers only to the lines in Form 1040, not any lines on schedule 1, namely line 7.  The SS worksheet in TT does say schedule 1 line 9.  So the IRS "new exclusion" guidelines are still not specific if I go by the worksheet in the form 1040 instruction booklet, which is official (vs the worksheet in TT, although I don't understand why the TT SS worksheet doesn't use the exact same wording as shown on the SS worksheet in the form 1040 instruction book).  All the posts that I read so far say do not include the $10200 credit when calculating the taxable SS income and determining the passive income loss limitation, and I tend to agree.  It would be good if the published "new exclusion" is more clear to provide more certainty. 

[cbco7]

@syoung123 If you scroll down to the section of the instructions at the link that is titled "Line 7", you will see the text in the third paragraph that starts out "Caution....".

For line 3 of the TT Social Security Benefits worksheet: the amount in the TT instructions labeled "Schedule 1, line 9" instead should be whatever is entered in Schedule 1, line 7, along with any other relevant amounts from Form 1040. So it sounds like you are doing it correctly given the current (confusing) IRS guidance. I can't speak to the Form 1040 instructions except to note that they may have been written prior to the passage of the American Rescue Plan and subsequent IRS interpretation.

All that being said, am waiting to file for several more weeks to see if anything changes, either on the IRS side or TT programming side. 

[syoung123]

I see the description in the "Line 7" section now.  Thank you.

"Caution. When figuring any of the following deductions or exclusions, include the full amount of your unemployment benefits reported on Schedule 1, line 7 (unreduced by any exclusion amount): taxable social security benefits....."

The amount on line 3 of the TT social security benefits worksheet is correct and the taxable social security benefits on line 20 is correctly calculated.  As you said, the description of line 3 should be sch 1, line 7 (not line 9).

I think I'll wait another week to file as well to see if there are anymore changes or interpretations.  Thank you.

[kripplekreek]

When will this be corrected?

[100392]

IRS says turbotax calculation on Social Security is not correct.  What do I do now.  I have ordered a transcript of my return