Step 1 IRS Guidance on $10,200 nontaxable unemployment

[sjrcpa]

New Exclusion of up to $10,200 of Unemployment Compensation | Internal Revenue Service (irs.gov)

[PATAX]

Sjr thank you for the link... I also give credit to the IRS for quickly taking care of this matter....👍

[sjrcpa]

I am also surprised they did this so quickly.

[Camp1040]

That was pretty quick with the guidance from the IRS. I'm impressed!

[artisgam]

Do you have to amend 2020 already filed?

[qbteachmt]

Thanks for the link. I hope the search engines find it, too.

[IRonMaN]

Good timing.  I just finished a return with unemployment.  Now I'll just have to see how I back off the reduction for MN.

[sjrcpa]

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

"For those who received unemployment benefits last year and have already filed their 2020 tax return, the IRS emphasizes they should not file an amended return at this time, until the IRS issues additional guidance.."

[TAXOH]

Thanks for posting. 

[PATAX]

Wow that is very important information... You can read it two different ways, one that they may automatically adjust the returns already filed with unemployment or the last 3 words at this time which could mean that they may want us to wait to file an amended return after their system is updated... great information sjr thank you again we appreciate everything that you do👍

[PATAX]

Probably the latter since they issued that worksheet but who knows.. Just my opinion

[SJHorrow]

Had a long day here

But are we waiting for Proseries software update for the exclusion?  

[BobKamman]

What they are saying is that the $150K figure includes unemployment, even if it's what puts the taxpayer over the $150K mark and would otherwise be excluded.

I'm not sure that's what the law says.  It creates a new Section 85(c) that says Section 85 is to be disregarded when determining modified AGI.  Does that mean disregard the requirement that unemployment be included in income?  Or disregard the possible exclusion?

[PATAX]

Had a long day too.. Yeah we have to wait a little bit for ProSeries to coordinate with the IRS and update the software... It might be a little while since everything has happened so quickly and they need time to update it ,so I am just going to be patient...

[PATAX]

Bob you have raised very good points ..... Hopefully guidance will come soon... Although I will say that I do not think there will be too many people making close to $150,000 who also received unemployment comp.... Most of the people who I have seen collect unemployment are those at the lower economic scale, i.e. income..just my opinion...

[IRonMaN]

I have at least a couple clients that hit that $150,000 mark.

[BobKamman]

I have clients with $140K in W-2 income, $30K in capital gains and $18K in unemployment.  Already filed a joint return, for refund.  Now I can do superseding MFS returns.  Still wondering, with a community income split, does each report $9K in unemployment and exclude all of it?

New subsection 85(c) says that the modified AGI be determined "without regard to this section."  If what they meant was "without regard to this subsection," that's what they could have said.  

[rbynaker]

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@IRonMaN wrote:

I have at least a couple clients that hit that $150,000 mark.

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I might make it a "next week" project to look at those returns for MFS vs MFJ (assuming these clients are married!)  MFS may be better this year anyway and then a $150K MFJ mark is moot.  I'm all for the path of least resistance if it's available but if not, this might be worth the fight.  (a) I think the IRS is wrong and (b) I think the IRS attorney's aren't going to want to invest time into fighting one obscure section of code that's only good for this year and affects such a miniscule percentage of tax returns, so they'll give in if it gets to appeals.

[rbynaker]

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@BobKamman wrote:

I have clients with $140K in W-2 income, $30K in capital gains and $18K in unemployment.  Already filed a joint return, for refund.  Now I can do superseding MFS returns.  Still wondering, with a community income split, does each report $9K in unemployment and exclude all of it?

New subsection 85(c) says that the modified AGI be determined "without regard to this section."  If what they meant was "without regard to this subsection," that's what they could have said.  

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Ah, so your clock is already ticking on MFJ > MFS.  I do very few returns from CP states.  I would think that as long as the community still exists (not separated, no abandoned spouses, etc.) that the income would split 50/50 and "each spouse" would get the $10.2K limit.

[BobKamman]

Can someone tell me why IRS is taking the long way around the barn for this? What is the difference between their 10-step program, and my two steps?

Step 1: Complete your return showing all of the unemployment you received. If the AGI on Line 11 is more than $150,000, STOP. You do not qualify for the exclusion.

Step 2: If AGI on Line 11 is less than $150,000, go back and subtract the unemployment received, up to $10,200, by entering it as a negative number on Line 8 of Schedule 1. On a joint return if both spouses received unemployment, subtract the unemployment received up to $10,200 for each. Write “R.I.P.” on the dotted line to the left of Line 8.

[abctax55]

@BobKamman  "..Can someone tell me why IRS is taking the long way around the barn for this?

What a dumb question; it's the IRS 🤣 !!!   Why would they *ever* take the short-cut around/thru the barn ?

And I just love the "split" the UIC due to community property idea.  Nothing I've seen in ARPA  addresses  it; the fact that the $ 150,000 cliff applies across the board to all filing statuses (statusi ?) means "they" weren't considering all the implications.  Surprise, surprise.... what's that line about haste making waste?

I have several I've been holding that I'll now go back & evaluate MFS.  Oh, joy.  

[BobKamman]

As a general rule, anything IRS announces on a Friday night is questionable, and they hope no one will notice it until Monday morning.  By then, there may be five newer problems and people won't have time for an old one. 

We can start debating which will last longer.  The IRS worksheet, or Governor Cuomo?

[abctax55]

LOL... it's Friday evening?  They all look alike right now.  If it weren't for trash day, I'd lose track.

I just looked at one MFS split; if my quickie analysis is correct, it would save over $ 4000.

Now the bill for explaining that to the client might wipe out half of the tax savings.

[walkertax]

Hi 

The IRS article refers to Line 7 and Line 8, and Line 8 on the tax form is "other income."  So where do we enter the exclusion amount in Pro-Connect?  Just go to "other income?"

Thanks.

Janet

[abctax55]

You would go to *wherever* in the software that you need to in order to get the adjustment to show as a negative number on Sch 1, line 8.  The IRS isn't going to provided detailed instructions on how to get your software to work.

[Ship]

It would be great if pro series can also get updated for the calculation just as quickly

[rlsilve]

Major issue for California returns - the exlusion carries forward to the state return as a negative on other income, on the Schedule CA,  while the entire unemployment is subtracted from CA income on the Sch CA. The CA gross income then comes out very wrong.  We need the UCE to not come forward to the CA return or a have a graceful way to undo it for CA returns.

[abctax55]

Which is why waiting for the software to be updated is wise IMHO....one "can" make it work on CA, but you do have to be aware of what the return should say in the first place.

[artisgam]

Pro Series will not allow input on line 8

[BobKamman]

Yes it will.  

[LBkoolmom]

proseries NEW download is wrong reporting below the line not above. MAGI . can you confirm?

AGI above the line includes *10200 repayment sub section 1009

i am losing student loan interest on clients with MAGI increasing by 10200!

[BobKamman]

Student loan interest is another of those computations, like Social Security, where AGI before the unemployment exclusion is still used for figuring the allowable deduction.

[LBkoolmom]

isn't "uce" UI repayment a part of AGI or not? Why is the worksheet adding back the 10200 ? thus increasing the worksheet. Am i missing something? Is the worksheet wrong?

[BobKamman]

Yes, you are missing the conforming amendment to Section 221 (student loan interest) in the American Rescue Plan Act:

SEC. 9042. SUSPENSION OF TAX ON PORTION OF UNEMPLOYMENT COMPENSATION.

(b) Conforming Amendments.—

(1) Section 74(d)(2)(B) of the Internal Revenue Code of 1986 is amended by inserting “85(c),” before “86”.

(2) Section 86(b)(2)(A) of such Code is amended by inserting “85(c),” before “135”.

(3) Section 135(c)(4)(A) of such Code is amended by inserting “85(c),” before “137”.

(4) Section 137(b)(3)(A) of such Code is amended by inserting “85(c)” before “221”.

(5) Section 219(g)(3)(A)(ii) of such Code is amended by inserting “85(c),” before “135”.

(6) Section 221(b)(2)(C)(i) of such Code is amended by inserting “85(c)” before “911”.

(7) Section 222(b)(2)(C)(i) of such Code, as in effect before date of enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, is amended by inserting “85(c)” before “911”.

(8) Section 469(i)(3)(E)(ii) of such Code is amended by striking “135 and 137” and inserting “85(c), 135, and 137”.

[qbteachmt]

I like this list, copied from @itonewbie (who copied a copy from  @TaxGuyBill ) :

@TaxGuyBill wrote:

It is not a bug, it is correct.

The calculation for taxable Social Security (and about 6 other things) still use the FULL amount of unemployment.  The $10,200 exclusion does NOT apply to those calculations.

These are the items that still use the full amount (thanks to "Judy" on another forum that I'm copy-and-pasting this):

• Taxable amount of social security
• Exclusion for US savings bond interest used for higher education
• Exclusion for employer-provided adoption assistance
• Limit on deductible IRA contributions by plan participants
• Limit on student loan interest deduction
• Limit on deduction for tuition and fees
• Limit on rental real estate exception to passive activity loss rules

For code-heads, these are Conformity Amendments for MAGI under Sec. 9042(b) of the ARP Act.

[MariaR]

Chiming in here as I have maybe two or three clients right now in this situation. MFJ, Spouse A hit 140k in W2 wages and Spouse B has 18k in Unemployment. The 18k in UE puts them past the 150k threshold, hence no exclusion as it is right now.

They have historically always filed together, many years. If we do a MFS split, if it indeed does benefit them, would it then create other problems such as maybe flagging the accounts for deviation from the historical norm. I'd hate to possibly cause delays.

They are in no rush to file so maybe another option is to suggest to wait it out a bit longer and maybe they issue something later down the line to not count the 10.2k of UE in the AGI to determine if the exclusion is available?