Right now all we have are hypotheticals. But I’m sure the Tax Court will come across a case like this and explain the law, a few years down the road:

Husband and wife in 2020 have $140,000 in W-2 income and $10,000 each in unemployment. That makes their AGI $160,000. IRS says sorry – you’re over the limit. But if their AGI is computed before application of Section 85, which made it taxable, they have only $140,000.

What difference does it make? First, they have to pay tax on another $20,000. Then, let’s give them three kids. They’re now not eligible for EIP#3, which would be $7,000. They lose out on some of their EIP#1 and EIP#2, also, if their 2019 income was too high for them to qualify.

IRS got it fast. But did they get it right? Stay tuned.