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Another new unemployment bug (2)

Ernie
Level 9

I have a client who has Social Security and it is using the amount that would be taxable if the unemployment is included in income causing the taxable Social Security to be higher that needed.

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11 Replies 11
Ernie
Level 9

@Orlando  another bug...

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TaxGuyBill
Level 15

It is not a bug, it is correct.

The calculation for taxable Social Security (and about 6 other things) still use the FULL amount of unemployment.  The $10,200 exclusion does NOT apply to those calculations.

These are the items that still use the full amount (thanks to "Judy" on another forum that I'm copy-and-pasting this):

  • Taxable amount of social security
  • Exclusion for US savings bond interest used for higher education
  • Exclusion for employer-provided adoption assistance
  • Limit on deductible IRA contributions by plan participants
  • Limit on student loan interest deduction
  • Limit on deduction for tuition and fees
  • Limit on rental real estate exception to passive activity loss rules
Ernie
Level 9

Thanks Bill.  I missed reading that. 

JohnStL
Level 2

Thank You

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itonewbie
Level 15

@TaxGuyBill wrote:

It is not a bug, it is correct.

The calculation for taxable Social Security (and about 6 other things) still use the FULL amount of unemployment.  The $10,200 exclusion does NOT apply to those calculations.

These are the items that still use the full amount (thanks to "Judy" on another forum that I'm copy-and-pasting this):

  • Taxable amount of social security
  • Exclusion for US savings bond interest used for higher education
  • Exclusion for employer-provided adoption assistance
  • Limit on deductible IRA contributions by plan participants
  • Limit on student loan interest deduction
  • Limit on deduction for tuition and fees
  • Limit on rental real estate exception to passive activity loss rules

For code-heads, these are Conformity Amendments for MAGI under Sec. 9042(b) of the ARP Act.

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Still an AllStar
GlobalOne
Level 2

What about the MAGI calculation for Marketplace insurance subsidy payback?

It would appear that the IRS is stating that MAGI for this purpose should not be reduced by the 10,200 unemployment comp exemption, but it is in Proseries. Is this right? why wouldnt you use full unemployment (ignoring the exemption) to calc MAGI for subsidy calc??????

Is this a bug that will come back to kill us and our clients in a year or two?

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TaxGuyBill
Level 15

@GlobalOne wrote:

It would appear that the IRS is stating that MAGI for this purpose should not be reduced by the 10,200 unemployment comp exemption

why wouldnt you use full unemployment (ignoring the exemption) to calc MAGI for subsidy calc??????


Where do you see that?

The calculation for the Premium Tax Credit did not change for 2020.  It is still based on AGI, with the same modifications as before.

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marlenew1951
Level 1

The California Schedule CA is calculating the amount of unemployment to subtract from California income incorrectly too.  It is subtracting the whole amount of unemployment before the exclusion.  I am just changing the amount.

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ckcpa
Level 1

but then isn't adding back the 10,200 on a different line - so net effect calc is correct?

 

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moondog3448
Level 1

The unemployment compensation exclusion is not deducted in the calculation of taxable social security.  Sec 9042 of the American Rescue Package Act of 2021 adds section 85(c) to the IRS Code.

SEC. 9042. SUSPENSION OF TAX ON PORTION OF UNEMPLOYMENT COMPENSATION.

(a) In General.—Section 85 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

“(c) Special Rule For 2020.—

“(1) IN GENERAL.—In the case of any taxable year beginning in 2020, if the adjusted gross income of the taxpayer for such taxable year is less than $150,000, 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.

“(2) APPLICATION.—For purposes of paragraph (1), the adjusted gross income of the taxpayer shall be determined—

“(A) after application of sections 86, 135, 137, 219, 221, 222, and 469, and

“(B) without regard to this section.”.

(b) Conforming Amendments.—

(1) Section 74(d)(2)(B)  of the Internal Revenue Code of 1986 is amended by inserting “85(c),” before “86”.

(2) Section 86(b)(2)(A) of such Code is amended by inserting “85(c),” before “135”.

(3) Section 135(c)(4)(A) of such Code is amended by inserting “85(c),” before “137”.

(4) Section 137(b)(3)(A) of such Code is amended by inserting “85(c)” before “221”.

(5) Section 219(g)(3)(A)(ii) of such Code is amended by inserting “85(c),” before “135”.

(6) Section 221(b)(2)(C)(i) of such Code is amended by inserting “85(c)” before “911”.

(7) Section 222(b)(2)(C)(i) of such Code, as in effect before date of enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, is amended by inserting “85(c)” before “911”.

(8) Section 469(i)(3)(E)(ii) of such Code is amended by striking “135 and 137” and inserting “85(c), 135, and 137”.

(c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2019.

The new Section 85(c) (2) refers to Section 86(b)(2)(A) of the Code which is the calculation of taxable social security. A partial excerpt from the unrevised Section 86 is below:

Code Sec. 86. Social security and tier 1 railroad retirement benefits

(a) In general

(1) In general

Except as provided in paragraph (2), gross income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the Social Security Act) includes social security benefits in an amount equal to the lesser of -

(A) one-half of the social security benefits received during the taxable year, or

(B) one-half of the excess described in subsection (b)(1).

(2) Additional amount

In the case of a taxpayer with respect to whom the amount determined under subsection (b)(1)(A) exceeds the adjusted base amount, the amount included in gross income under this section shall be equal to the lesser of -

(A) the sum of -

(i) 85 percent of such excess, plus

(ii) the lesser of the amount determined under paragraph (1) or an amount equal to one-half of the difference between the adjusted base amount and the base amount of the taxpayer, or

(B) 85 percent of the social security benefits received during the taxable year.

(b) Taxpayers to whom subsection (a) applies

(1) In general

A taxpayer is described in this subsection if -

(A) the sum of -

(i) the modified adjusted gross income of the taxpayer for the taxable year, plus

(ii) one-half of the social security benefits received during the taxable year, exceeds

(B) the base amount.

(2) Modified adjusted gross income

For purposes of this subsection, the term "modified adjusted gross income" means adjusted gross income -

(A) determined without regard to this section and sections 135, 137, 221, 911, 931, and 933, and

(B) increased by the amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.

The revised section 86(b)(2)(A) will include a reference to Section 85(c) so that now, that section  basically says “MAGI for Social Security Purposes is determined without regard to Section 85(c) the deduction of the unemployment exclusion”

 

 

taxinsanity
Level 2

Thanks for the details on this as most other posts were very generic and not very informative.  Like the unemployment issue affecting CA returns, it is difficult to see what is correct and what is an error in the program at this stage....