Post Your Unemployment Exclusion Questions Here

[BobKamman]

Here's mine:

Spouse 1 income: About $100K

Spouse 2 income: About $70K on a W-2, and $18K unemployment.

Joint return already filed.

Can amend to separate by April 15.

On separate return, Spouse 2 qualifies to exclude unemployment.

Complication: This is a community-property state. They would still qualify, but splitting is a nuisance. And is unemployment considered community income?

[Just-Lisa-Now-]

quit it! LOL

Hey is the 150k limit only for MFJ? does it get cut in half for Single?

[BobKamman]

$150K regardless of filing status.  They were in a hurry.  Sort of like the $300 charitable adjustment.  

[IRonMaN]

I thought I saw someplace here, that it was $600 for a joint return 😆

[rbynaker]

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@BobKamman wrote:

$150K regardless of filing status.  They were in a hurry.  Sort of like the $300 charitable adjustment.  

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At some point along the way the IRS found a reason to interpret the charitable adjustment of $300 per "tax-filing unit" to be $150 for MFS.  I have yet to find any authority for this position.  The law uses the terms "eligible individual" and "not to exceed $300" but is otherwise silent regarding filing status.

What's the risk that the IRS will similarly apply this 50% limit reduction for MFS filers with unemployment, making it $75K instead of $150K?

Has anyone actually figured out how the IRS arrived at their $150 above-the-line MFS charity limit?  Perhaps the same authority could/would be applied to the $150K AGI limit here.

Speculation aside, worst case scenario I see is for MFJ returns already filed and NO deadline extension provided by the IRS or Congress.  MFS is already better in more situations this year than in a normal year because of the RRC.  This unemployment AGI limit throws even more returns into advantageous MFS situations.  The ticking clock would seem to be the 4/15/21 deadline for filing superseding returns as MFS to replace prior returns filed as MFJ.  4/16/21 is too late to make that change.  Oh, and that's one of the changes that the IRS does not allow to be made electronically.  So back to the good ol' paper 1040X forms for filing status changes!

[Just-Lisa-Now-]

So Ive got one with a Covid distribution that figured they'd just bite the bullet and pay the tax on all of it this year, why prolong the pain, BUT they also have UI...so if they spread it out over 3 years their income squeaks in just under the 150k mark and they can exclude the $10,200, so that's saving another 3k if they spread it out that distribution.

[BobKamman]

And the return is not even filed yet?  You must go to the right church.  

[BobKamman]

@rbynaker 

Maybe there was some executive order that allowed IRS to legislate taxes.  You're right, I can't find anything either.  Maybe there is some obscure code section that says "if we don't mention it, cut it in half for MFS."  But a lot of married people who file separately anyway are reading this week about $150K, and they're not going to be happy next week with $75K.

[rbynaker]

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@Just-Lisa-Now- wrote:

So Ive got one with a Covid distribution that figured they'd just bite the bullet and pay the tax on all of it this year, why prolong the pain, BUT they also have UI...so if they spread it out over 3 years their income squeaks in just under the 150k mark and they can exclude the $10,200, so that's saving another 3k if they spread it out that distribution.

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And who says tax planning ends at 12/31!?!  Remember anyone with a COVID related retirement distribution can also choose to repay all or part of the distribution.  So if you run into somebody just over the $150K AGI number they could be in a situation where repaying $2K to their IRA saves them $3K in tax.