IRS Changes Unemployment Exclusion Calculation
Update to posted guidance
Once again, the IRS has made changes to forms relating to the New Exclusion of up to $10,200 of Unemployment Compensation guidance.
Original IRS guidance said to include unemployment income when calculating the $150,000 modified adjusted gross income (AGI) limitation. Today, the IRS provided updated instructions for the unemployment compensation exclusion worksheet which now states modified AGI does NOT include unemployment compensation.
As noted within the guidance, if a 2020 Form 1040 or 1040-SR return has already been filed, there is no need to file an amended return to figure the amount of unemployment compensation to exclude. The IRS will refigure the taxes using the excluded unemployment compensation amount and adjust the tax account accordingly. The IRS will send any refund amount directly to the taxpayer.
Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline
IR-2021-59, March 17, 2021
WASHINGTON — The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days.
“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig. “Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to.”
Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.
Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.
The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.
This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.
State tax returns
The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.
Winter storm disaster relief for Louisiana, Oklahoma and Texas
Earlier this year, following the disaster declarations issued by the Federal Emergency Management Agency (FEMA), the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. This extension to May 17 does not affect the June deadline.
New Exclusion of up to $10,200 of Unemployment Compensation
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.
The exclusion should be reported separately from your unemployment compensation. See the updated instructions and the Unemployment Compensation Exclusion Worksheet to figure your exclusion and the amount to enter on Schedule 1, lines 7 and 8.
The instructions for Schedule 1 (Form 1040), line 7, Unemployment Compensation, are updated to read as follows.
You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you in 2020. Report this amount on line 7.
Caution. If the amount reported in box 1 of your Form(s) 1099-G is incorrect, report on line 7 only the actual amount of unemployment compensation paid to you in 2020.
Note. If your modified adjusted 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 to you in 2020. For married taxpayers, you and your spouse can each exclude up to $10,200 of unemployment compensation. For example, if you were paid $20,000 of unemployment compensation and your spouse was paid $5,000, report $25,000 on line 7 and report $15,200 on line 8 as a negative amount (in parentheses). The $15,200 excluded from income is $10,200 for you and all of the $5,000 paid to your spouse. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation. Use the Unemployment Compensation Exclusion Worksheet to figure your modified AGI and the amount you can exclude.
If you made contributions to a governmental unemployment compensation program or to a governmental paid family leave program and you aren’t itemizing deductions, reduce the amount you report on line 7 by those contributions. If you are itemizing deductions, see the instructions on Form 1099-G.
Caution. Your state may issue separate Forms 1099-G for unemployment compensation received from the state and the additional $600 a week federal unemployment compensation related to coronavirus relief. Include all unemployment compensation received on line 7.
If you received an overpayment of unemployment compensation in 2020 and you repaid any of it in 2020, subtract the amount you repaid from the total amount you received. Enter the result on line 7. Also enter “Repaid” and the amount you repaid on the dotted line next to line 7. If, in 2020, you repaid more than $3,000 of unemployment compensation that you included in gross income in an earlier year, see Repayments in Pub. 525 for details on how to report the payment.
Tip. If you received unemployment compensation in 2020, your state may issue an electronic Form 1099-G instead of it being mailed to you. Check your state’s unemployment compensation website for more information.
Unemployment Compensation Exclusion Worksheet – Schedule 1, Line 8
- Enter the total of lines 1 through 7 of Form 1040 and Schedule 1, lines 1 through 7. Include the full amount of unemployment compensation you received in 2020 on Schedule 1, line 7.
- Use the line 8 instructions to determine the amount to include on Schedule 1, line 8 and enter here. Do not reduce this amount by the amount of unemployment compensation you may be able to exclude.
- Add lines 1 and 2.
- Enter the total of line 10b of Form 1040 and Schedule 1, lines 10 through 21.
- Subtract line 4 from line 3. This is your modified adjusted gross income.
- Is the amount on line 5 $150,000 or more?
- [ ]Yes. Stop You can’t exclude any of your employment compensation
- [ ]No. Go to line 7
- Enter the amount of unemployment compensation paid to you in 2020. Don’t enter more than $10,200
- If married filing jointly, enter the amount of unemployment compensation paid to your spouse in 2020. Don’t enter more than $10,200
- Add lines 7 and 8 and enter the amount here. This is the amount of unemployment compensation excluded from your income.
- Subtract line 9 from line 2 and enter the amount on Schedule 1, line 8. If the result is less than zero, enter it in parentheses. On the dotted line next to Schedule 1, line 8, enter “UCE” and show the amount of unemployment compensation exclusion in parentheses on the dotted line. Complete the rest of Schedule 1 and Form 1040, 1040-SR, or 1040-NR.
Tax Professional Community:
The IRS recently reminded tax professionals who specialize in representation or other services, that they will need a Secure Access username and password to use the new authorization form upload tool that launches next month.
This upload tool will allow an alternative to person-to-person contact as COVID-19 remains a threat to taxpayers and tax professionals. But tax professionals must have a Secure Access username and password in order to access it.
Many tax professionals can use their e-Services username and password to access the “Submit Forms 2848 and 8821 Online” tool when it becomes available in mid-January. Tax professionals who do not have access to e-Services may have to register using personal tools such as Get Transcript, Online Account or Get an IP PIN.
To register for one of the personal tools, review IRS.gov/SecureAccess to see what information is needed to successfully verify identities and create an account. Please note: if you do not have a mobile phone in your name you must request an authorization code by mail which will delay the registration process.
This new upload tool will allow tax professionals to safely work with clients remotely to obtain an electronic signature and to electronically upload Forms 2848 or 8821 to the IRS. The forms will be reviewed by the IRS following the usual process.