New Exclusion of up to $10,200 of Unemployment Compensation for 2020 1040 Returns

The IRS released the following information regarding “The American Rescue Plan”. We have updated our program to reflect those changes. After applying the update, you will need to go into any existing tax returns for calculations to be applied. New tax returns moving forward will be automatic. If your client has unemployment income, and is below the applicable threshold, an automatic entry on line 8 of Schedule 1 “Other Income” with “UCE” as the description and a negative number will be produced. The link below will give you more information on the IRS website.

If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

NOTE: The IRS is still in the process of working on the details of modified AGI, how the new unemployment calculation effects taxable social security, and several other forms and calculations that may be affected by MAGI. Hopefully they will be posting a new worksheet regarding these issues that were raised with the IRS today.

NOTE: Every state is different and many are working through their legislatures to conform or not to conform. Some states may look at the federal unemployment line and if that amount doesn’t match this could throw up a state business rule reject. It will take time to work through those and we will address them as quickly as possible.

Author’s Note: The IRS will accept these returns with the calculations that we just put into the system but it is based on the worksheet listed above. We believe changes may be coming soon to that worksheet and we may have better information on how some of the states are handling these changes. Just a word of caution as the IRS continues to work on this issue.


Previously Filed Returns with Unemployment

The IRS strongly recommends that tax preparers and taxpayers should NOT yet file amended returns for the Unemployment Exclusion. Official IRS guidance is forthcoming. Currently the IRS is working on if they can systemically adjust these returns on the back end and not require an amended return.

How to generate a report of all clients that have unemployment in Wintax.
Instructions here:

When or if the IRS decides to allow amended returns, we will post a guide for electronically filing amended returns.


Premium Tax Credit – Please stay tuned.
Effective for 2020 only, any advance payment that exceeds the Premium Tax Credit allowed is disregarded and does not increase tax liability on the return. This suspension applies to all taxpayers regardless of income level as a percentage of the federal poverty level.

The IRS’s first priority was the Unemployment Exclusion change and we expect more information on the APTC in the near future. For now, if you have clients that this would apply to, we would advise holding these returns until further information is available.