Unemployment Compensation Exclusion

[M7047]

22 hours ago, Randall said:

Just did one with UE and SocSec.  Worksheet for SocSec in ATX adds back the $10,200.  Looked on irs.gov and their worksheet just says to add the amounts on 1040 p1.  ATX took that number and added back the 10,200.  I'll put it on hold until ATX updates.

Ugh, I didn't even catch this on the first one I did. Why is this even an issue though? The worksheet (even in ATX) says the amounts from page one of the 1040 (not the amount from sch 1 line 7). This amount already has the 10,200 taken out.

 

[TexTaxToo]

The law says the $10,200 has to be added back to MAGI for the taxable Social Security calculation.  The worksheet instructions do not clearly say that, but they have already been changed once.

[Pacun]

6 hours ago, TexTaxToo said:

The law says the $10,200 has to be added back to MAGI for the taxable Social Security calculation.  The worksheet instructions do not clearly say that, but they have already been changed once.

So that means for someone who collected unemployment and collected social security benefits? 

So to calculate the taxable portion of SS, you have to add back the $10,200 of unemployment?

[Randall]

I thought IRS changed their interpretation of the law so the 10,200 was not added back.  I'm really confused now.

 

[Abby Normal]

I already posted the latest from irs.gov that covers the Social Security calculation and others.

 

[TexTaxToo]

26 minutes ago, Abby Normal said:

I already posted the latest from irs.gov that covers the Social Security calculation and others.

I think the confusion is that the latest instructions only mention Schedule 1, lines 7 & 8.  The instructions for the Social Security calculation do not directly involve those lines, but only mention lines on the 1040:

Quote

3. Combine the amounts from Form 1040 or 1040-SR, lines 1, 2b, 3b, 4b, 5b, 7, and 8 . . . . . . . . . . . 3.

It seems pretty clear that you should add back the $10,200 here, but the new instructions do not explicitly say that, so if you follow them literally, it doesn't get added back.  Confusing!

[Randall]

So I guess ATX is doing it correctly, just adding back the 10,200 on the SocSec worksheet to what the 1040 lines add up to.

[Burke]

On 3/16/2021 at 6:33 PM, Possi said:

Yes, but it has its own line. It is specifically subtracted as Unemployment. So, unless the federal adjustment is specifically "unemployment" which has already been deducted from VA.... in other words, if the new adjustment comes off the taxable income as any other kind of adjustment, VA and states like it, may not identify that federal adjustment as unemployment... which was already adjusted off the state. 

Maybe I'm over-thinking this. 

I am thinking that VA is pulling the amount from the 1099G in ATX  which it has probably always done.  What it will have to do is pull it from Schedule 1, Line 8, which will show the taxable amount.    I had to notify them of this years ago for VA treatment on another issue (Spouse subtraction).  And come to think of it, if both MFJ have UI, it will have to be manually adjusted on that worksheet for it to calculate correctly.    

[Possi]

40 minutes ago, Burke said:

I am thinking that VA is pulling the amount from the 1099G in ATX  which it has probably always done.  What it will have to do is pull it from Schedule 1, Line 8, which will show the taxable amount.    I had to notify them of this years ago for VA treatment on another issue (Spouse subtraction).  And come to think of it, if both MFJ have UI, it will have to be manually adjusted on that worksheet for it to calculate correctly.    

VA will pull from the 1099G, so you do need to make an adjustment to the VA return.

[Carolbeck]

And we may not be out of the woods for not having to file Amended returns for the UCE. As per the IRS Newsroom Notification today: https://www.irs.gov/newsroom/irs-to-recalculate-taxes-on-unemployment-benefits-refunds-to-start-in-may

 

For example, the IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income.

[Medlin Software, Dennis]

I did not notice any such exclusion set for 2021, did I miss it?

Working with someone to finish 2020, and to make plans for 2021 (likely legit on UI through Sept 2021).

[TexTaxToo]

ARPA only provided the exclusion "In the case of any taxable year beginning in 2020"