EIC and the $10,200 unemployment exclusion

[Taxlady44]

There appears to be a calculation error when program figures EIC when there is a $10,200 exclusion for unemployment.

The $10,200 exclusion is calculated correctly, but the EIC worksheet does not add back in the $10,200 when determining eligibility for EIC.  I have had three clients who did not get the refund that ProSeries calculated.  They got the amount for the $10,200 exclusion, but EIC was denied.  The IRS directive is that the exclusion could not bring a taxpayer into EIC.  or increase their EIC.

I called customer support and could not get them to understand this.  I do not know where to do next.

[TaxGuyBill]

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@Taxlady44 wrote:

but the EIC worksheet does not add back in the $10,200 when determining eligibility for EIC

The IRS directive is that the exclusion could not bring a taxpayer into EIC.  or increase their EIC.

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Why do you think there is an add-back?  What IRS directive?

EIC uses "Earned Income" (so unemployment does not affect that) and AGI (the $10,400 reduces AGI).  As far as I know, there is no provision for the calcuation to use a Modified AGI that adds back unemployment.

As for your clients that had EIC denied, you need to find out WHY the IRS denied it. 

[BobKamman]

Give us an example.  AGI with and without unemployment; earned income; filing status; how much EIC the program allowed, how much IRS allowed.  And has the return been locked so maybe the program erred the day you filed it, but that was long ago and far away?  Otherwise, we're just blind folks trying to describe an elephant.  

[Just-Lisa-Now-]

IRS automatically corrected for the UI exclusion after you filed the original return?

If they didnt qualify for EIC on the original return (that didnt have the ui exclusuion included), then when IRS made the UI adjustment they qualified, you need to amend for that and go through the due diligence questions in order for them to get the EIC portion of the refund.

[Taxlady44]

Additional info as requested:

Filing MFJ with 2 dependents

                                                                      Original with full                          Pro Series calculation

                                                                              unemployment                       with exclusion amount          

      AGI                                                                  $56,026                                    $45,826

     Tax                                                                        $.00                                         $.00

     EIC                                                                        $.00                                        $1581

                                                                          AGI was over the limit

  Unemployment                                                    $17,940                                         $7,740

   Sch EIC line 9                                                not calculated due to AGI               $45,826

                                                                                                                         according to IRS it should

                                                                                                                                 have been $56,026

IRS denied the EIC of $1581 saying the Unemployment exclusion could not be used in determing EIC.

IRS did refund $1236.03 which was associated with the $10,200  exclusion plus interest.

I still feel that ProSeries calculation is incorrect.  I am sure this happened to others in similiar situation.

The return was not locked.  Didn't even know you could do that.

[Taxlady44]

IRS replied that you can not use the amount of the exclusion when figuring EIC which makes the ProSeries calculation incorrect.

[Taxlady44]

They stated that you cannot use the unemployment exclusion when figuring EIC. 

[BobKamman]

"IRS replied" -- The Commissioner?  Chief Counsel? Or a phone clerk who was hired 3 weeks ago and just finished Phase 1 Training?

[abctax55]

"IRS replied" -- The Commissioner?  Chief Counsel?

And even if it was one of them on the phone...it STILL would have to be in writing.

[TaxGuyBill]

It doesn't really matter what some idiot at the IRS said.  CONGRESS writes the law, and the law says it is allowed.

First, get something in WRITING that says that is the reason why they are denying it.  I suspect the reason is actually some other reason.  If that is why they are denying it, then respond to the IRS with this information:

Section 32 of the tax code is for EIC.  It uses AGI, not a Modified AGI.  Nothing in the new law changed that.

Section 85(c) of the tax code is for the unemployment exclusion.  It says that up to $10,200 of unemployment can be excluded from the taxpayer's "gross income".  No part of that (including no conforming amendments) is for Section 32 (EIC).

https://www.law.cornell.edu/uscode/text/26/32

https://www.law.cornell.edu/uscode/text/26/85

[BobKamman]

"IRS replied that you can not use the amount of the exclusion when figuring EIC"

In Phase 1 training, they teach that unemployment is not earned income.  Call back next month and they will know from Phase 2 that if the exclusion reduces AGI to an amount that allows EIC, the "automatic" IRS amendment will not compute it -- you still have to file an amended return, as pointed out by @Just-Lisa-Now-  above.