Unemployment Compensation Exclusion Worksheet

[twisniewski7]

When will the Unemployment Compensation Exclusion Worksheet become available in proseries?

[IRonMaN]

Nobody knows, but you can do a DIY thing for the federal (magical word is UCE).  But that still leaves your state hanging.

[tkarris]

This is exhausting. I can manually do the federal, but I have no info on the states. Anyone know if NY will exclude unemployment benefits? 

[IRonMaN]

Nobody here knows.  Check with your local elected state representative to see what the general feel is as to whether or not the state is going to go along with the feds.

[tkarris]

There seems to be a possible issue with the $150,000 cut off. The IRS is not distinguishing between married filing joint or single or married filing separate. It seems to be $150,000 no matter what. I wonder if we can file our taxpayers married filing separate to get them both under $150,000. Thoughts? 

[jkbuxton33]

The distinguishing part is that with MFJ EACH person gets to take off $10,200.

From https://www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemploym...

"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."

[tkarris]

That's how I understood it also, but they are in effect punishing those that file joint returns by cutting off the non taxability of unemployment at MAGI of $150,000. So, a single person would have the same cut off as a couple. Doesn't seem right. I have clients that filing married joint would be over the $150,000 thresh hold, but would be under by filing married separate, unless the tax program halves that thresh hold for MFS, but again, this is unequal tax treatment, as single people get the same $150,000 amount.

[jkbuxton33]

NOT a fact, just a supposition:

Knowing the IRS, they wouldn't cut the threshold in half for MFJ, what they would do is not give any credit for filing MFS.

Here is the exact wording from the bill which you can read at https://www.congress.gov/bill/117th-congress/house-bill/1319/text#toc-H8175A5313F2D4A63BC9766BF246BA...

SEC. 9042. SUSPENSION OF TAX ON PORTION OF UNEMPLOYMENT COMPENSATION.  (Bold is mine)

“(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.”.

So as you can see it is up to interpretation and I suspect a stormy road. Calls to congress people by those that will be affected are probably appropriate starting now. 

[TCroft]

How are you taking the Federal exclusion manually? When I enter a negative amount on Schedule I Line 8 (like the worksheet instructs), it throws an error and will not let me override or file the return. 😒

[mtordjman]

I am not so sure what is taking so long for ProSeries (and Turbo Tax) to update their software. Besides, what are we, as tax preparers, supposed to do for all those tax returns that were already filed, which included the full taxable amount of unemployment. Further, what to say to the concerned taxpayers (embarrassment and additional work not included)? 

[tkarris]

Hold off on any amended returns. I wouldn't process any until after 4/15 anyway, but the IRS said hold off, they will provide guidance. There is nothing to be embarrassed about. This was a surprise amendment added Friday night on March 6, 2021. Simply tell your clients that and that you will amend as/if necessary. 

[IRonMaN]

"what are we, as tax preparers, supposed to do for all those tax returns that were already filed, which included the full taxable amount of unemployment" 

The IRS says to wait.

[tkarris]

I am going to try and wait till Proseries ( not sure what program you are using) gives us an update, but I ran a trial and I was able to add a negative number to schedule 1, line 8 on ProSeries Professional.

[tkarris]

The IRS has the ability to adjust everyone's returns without needing us to amend.  Hopefully they will do that and save us all a ton of agita. 

[IRonMaN]

Generating the Unemployment Compensation Exclusion... - Intuit Accountants Community

[Musictax]

Enter the negative amount on the "other income" worksheet.

[IRonMaN]

I wouldn't do that now.  An update is supposed to be available later today so I would just wait rather than gum up the works.

[Musictax]

Yeah, good idea...