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UI exclusion for married taxpayers - California issue

What are the mechanics and inputs in Lacerte for this situation? 

The TP got no UI while the Spouse got 27K UI

The result should be 6,600 of taxable UI  (27,000 - 20,400)

I'm fairly certain that screen 14.2 is the form for the input. Should I use two input lines - one for TP and one for Spouse and allocate 13,500 of UI to each?

Spidell - a supplier of tax education in California advised this:

If a married couple's combined AGI (calculated without any UI compensation) is below $150,000, then MFJ taxpayers may exclude up to $20,400 of unemployment income even if one of the spouses had less than $10,200 in UI and the other spouse had more than $10,200. That is because California is a community property state and the Tax Court has recognized that UI is treated as community property. (Calhoun v. Commissioner (1992) 64 TC 222) However, your tax software may not properly split this income, and could improperly limit the exclusion if one spouse received less than $10,200. Tax professionals need to watch out for this and apply a manual override in this situation.

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BobKamman
Level 14

I had only one of those but I filed the superseding returns a few weeks ago with the community income split.  You're expecting IRS to provide 😅guidance😅 before May 17?  Even if they do, and it's negative, it's better to have a protective claim when they change their mind or are overruled.  But miracles can happen so maybe they will go ahead and encourage more paperwork.  They have only 1.7 million unprocessed returns left over from 2019, down from 2 million a month ago, and they say they can start the advanced child tax credit payments in July.  

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4 Replies 4
BobKamman
Level 14

The Tax Court has not recognized that unemployment benefits are community property, although that's really not their call to make because they just follow California state court decisions on such issues.  An 82-year-old senior judge, almost 30 years ago in a Memorandum opinion, accepted the IRS argument that the wife had to report half the husband's "earnings," which it took to mean both wages and unemployment, even though IRS had previously assessed all of them to the tax-protester husband.  

Has Spidell found a California case where unemployment was a community-property issue?  As I think I posted earlier, there aren't many unemployed people who end up in appeals courts.  

The amendent to ARPA that excluded unemployment was approved by the Senate, literally in the middle of the night, with no discussion of what it meant.  The law states: "the gross income of such taxpayer shall not include so much of the unemployment compensation received by such taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200."  What does "received by" really mean?  I won't be surprised if IRS makes what I think is a weak argument, that this limits the exclusion to the name on the 1099-G.  It will be an interesting summer to watch this play out.  

amec
Level 3

If you read the message board, you'll also see Spidell is recommending waiting on IRS guidance to file.

 

Drphibes
Level 4

The problem wit this is I have 17 already filed MFJ clients that undoing the filing before May17th and do MFS will save at least $1,700 and at the most $3,833 if the community split is 50/50.  Going to wait 2 more weeks and then offer them the choice.

BobKamman
Level 14

I had only one of those but I filed the superseding returns a few weeks ago with the community income split.  You're expecting IRS to provide 😅guidance😅 before May 17?  Even if they do, and it's negative, it's better to have a protective claim when they change their mind or are overruled.  But miracles can happen so maybe they will go ahead and encourage more paperwork.  They have only 1.7 million unprocessed returns left over from 2019, down from 2 million a month ago, and they say they can start the advanced child tax credit payments in July.  

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