Unemployment Compensation Exclusion

[Possi]

11 minutes ago, jklcpa said:

You aren't overthinking it. That is exactly what is currently happening on the DE returns in Drake at the moment.  DE starts with Fed AGI and makes modifications, so since DE decided to make UI N/T for 2020 I'm having to override the DE subtraction to be -0- if UI is N/T in its entirety on the Federal, or to override so that the DE subtraction is the amount over $10,200 that is still taxed on the Federal return.

Well, one would think that if UI was not taxable to the state to begin with, then just don't amend the state. BUT, it's not that simple because the state begins with AGI which will change.

Lord, I pray that they can adjust the 1099G data entry to keep things (at least SOMEWHAT) copasetic. 

You explained that very well, as you always do. Thank you!

[Tax Prep by Deb]

6 hours ago, cbslee said:

 Drake has updated their software with the UCE worksheet and my understanding is kaput!

Yes Drake has updated their software but only for the Federal.  I have an issue where here in California Unemployment is not taxed therefore an adjustment is made, now with the adjusted federal AGI it's as if though California is being adjusted again for the 10,200.  As was stated earlier you are going to have to watch your state returns very carefully.

[Possi]

Is there ANYBODY in government standing in the gap for Tax Pros? 

#askingforafriend

[Lee B]

19 minutes ago, Possi said:

Is there ANYBODY in government standing in the gap for Tax Pros? 

#askingforafriend

Possi, thanks, I needed a good laugh

[Pacun]

I guess Drake is grabbing the numbers from the wrong place to make the subtraction. They should have something like "StateDeduction=Unemploymentcollect-NotTaxablePortion". It should take less than 15 minutes to a programmer per state that doesn't follow Fed.

Someone mentioned that now that AGI has been changed, they need to check the child tax credit.  Keep in mind that now that this has change, you might want to see if checking EI for 2019 is more beneficial to the tax payer. If prior to this change you filed using 2020 EI and now the situation has changed and 2019 EI yields better outcome, you should amend. This could happen with a HH earning little IE in 2020 and having AGI of about $41,200. Now AGI will be $31,000 and there is more room for IC. If the EI was low but since there was no room for a lot EIC, it didn't make sense to use 2019 income but now it makes sense.

 

[Chowdahead]

I'm assuming this won't affect those taxpayers who used their previous year AGI to calculate their Child Tax Credit and Earned Income Credits, because this will just make their 2020 income even lower than 2019.

And do we know if this will impact EIC eligibility?  Or will the EIC still calculate the full 1099-G amount as part of eligibility for the credit?

 

If it impacts EIC, I can see many people filing amended returns to both save on the taxes and gain EIC.

[Pacun]

22 minutes ago, Chowdahead said:

If it impacts EIC, I can see many people filing amended returns to both save on the taxes and gain EIC.

Yes, it will affect EIC credit if it lowers AGI.  In February, when unemployment was fully taxable, unemployment put a lot of people beyond the EIC limit, if the new regulations just eliminate those $10,200 from income, they will qualify. 

If EIC is adjusted, the stimulus might run out of money. I have not done the math but maybe IEC is not even a billion.

[Tax Prep by Deb]

Drake has now corrected the problem with California and it is flowing correctly now.

[Tax Prep by Deb]

17 hours ago, Tax Prep by Deb said:

Drake has now corrected the problem with California and it is flowing correctly now.

But I ran into a problem with the modified AGI for the ACA reconcilliation.  A return rejected because of a mismatch.  Hopefully this gets fixed soon!

[liztax]

Does anyone know about how NC &GA  stand on the unemployment exclusion?

[BulldogTom]

1 hour ago, Tax Prep by Deb said:

But I ran into a problem with the modified AGI for the ACA reconcilliation.  A return rejected because of a mismatch.  Hopefully this gets fixed soon!

I was waiting to see how this was going to work.   The CA PTC is wrapped up in that as well.   I have not played with it in ATX yet, waiting for the updates to roll out.   

Tom
Modesto, CA

[Jrkmbowman]

Does anyone know when ATX will actually update?  I have 2 clients waiting to file because of this.

[JackieCPA]

4 hours ago, Jrkmbowman said:

Does anyone know when ATX will actually update?  I have 2 clients waiting to file because of this.

I hope soon! We have a lot of returns here that I am unsure what to do with. Part of it is because MN keeps saying they are going to change what they are doing and keep changing what they will have excluded.

[Pacun]

I am waiting on MD who will not tax any of the unemployment but ATX says that on Tuesday they will have the form. Now I have to wait for Federal. DC follows the Federal most of the time. They have the same standard deduction and 0 personal exemption. I believe DC will not tax 10,200 so that will be a breeze when 1040 is updated.

[Jrkmbowman]

55 minutes ago, JackieB said:

I hope soon! We have a lot of returns here that I am unsure what to do with. Part of it is because MN keeps saying they are going to change what they are doing and keep changing what they will have excluded.

Me too.  I have 2 waiting for them to update federal (Va doesn't tax unemployment so thats a plus on my state side) and I have 9 waiting to see if they have to amend.....  

[TAXMAN]

On VA just be careful that VA doesn't try to back it out twice because of how it get reported for federal and where VA will get their #. Several discussions about previously.

[Chowdahead]

Apparently the IRS will make the calculation automatically and refund the difference

https://www.nytimes.com/live/2021/03/18/business/stock-market-today 

[Sara EA]

There are too many possibilities and not enough concretes for us to get into this yet.  The IRS commissioner said today he "thinks" the IRS can handle correcting returns that have unemployment.  The software companies can't just update their systems without going through IRS system acceptance, so don't blame them.  The states each have to decide how to handle these changes, and some of them will have to call special sessions if their legislatures aren't meeting at this time.  Once the fed decides what to do we are not home yet because it may take awhile for the states.  We just have to tell clients that nothing is settled yet and they have to wait.  So don't even think about amendments yet.  We too have a number of clients who haven't filed yet who are in a hold file while this gets sorted out.  As much as we love our clients and want to help, there is nothing we can do right now but chill.

[Catherine]

On 3/14/2021 at 6:21 PM, grandmabee said:

at that point I would probably put a 1 as taxable just to be able to efile.  But I don't think that will be a problem.

 

I do that with clients who live outside the US and cannot possibly get a mailed-in return to the IRS on time (bad mail service in their country).  We exclude all earned income, and add in $1 of interest.  Poof, we can e-file.  

[Margaret CPA in OH]

Missing something here - with only $1 of interest, how does that overcome the standard deduction? 

[Catherine]

1 minute ago, Margaret CPA in OH said:

Missing something here - with only $1 of interest, how does that overcome the standard deduction? 

You have non-zero taxable income on the "taxable income" line before the standard deduction is applied. With foreign earned income exclusion, that taxable income can easily be wiped out to $0 *before* you apply sd, and then e-file is not possible.  

[Abby Normal]

Wasn't sure whether to start a new post for this or not.

If a child's unemployment compensation would trigger the kiddie tax, how does the exclusion of the child's unemployment affect the kiddie tax?

Also, if the parent's AGI is over 150k, does that change the answer?

[GLJEANNE]

21 hours ago, JackieB said:

I hope soon! We have a lot of returns here that I am unsure what to do with. Part of it is because MN keeps saying they are going to change what they are doing and keep changing what they will have excluded.

IKR???  I'm tearing out my hair because MN hasn't passed a damned tax bill for 2020 yet!  So many federal changes, and no idea which they'll conform and which not.  They're always late, but we've never had so many changes like this.

[Slippery Pencil]

20 minutes ago, Abby Normal said:

If a child's unemployment compensation would trigger the kiddie tax, how does the exclusion of the child's unemployment affect the kiddie tax?  Also, if the parent's AGI is over 150k, does that change the answer?

Excluded amount is excluded from kiddie tax.

No.

[Pacun]

My feeling is that the excluded amount will be treated as if never existed. That will trigger (if applicable) EIC, Child tax credit, additional child tax credit, stimulus, savers credit, educational credits and a few more credits or tax liabilities.