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Unemployment: Been There, Done That

Level 13

The first thing IRS would have done last week, when the unemployment exclusion seemed likely to pass, is to ask, “Has this happened before?” The answer is yes, although not retroactively. The second question they would have asked is, “What did we do back then?” This is from Pub 17 for 2009, when the first $2,400 of unemployment was not taxable:

“You should receive a Form 1099-G showing in Box 1 the total unemployment compensation paid in 2009. You must subtract $2,400 from that amount to figure how much of your unemployment compensation is taxable and must be reported on line 19 of Form 1040, line 13 of Form 1040A or line 3 of Form 1040EZ. Do not enter less than zero. If married filing jointly, include any unemployment compensation received by your spouse that is more than $2,400.”

So my prediction is that IRS will tell us just to subtract $10,200 from the Schedule 1, Line 7 amount, for qualifying taxpayers. But qualifying is complicated, for at least two categories of people:

1) Those who are anywhere near the $150,000 income limit. And is IRS going to say that really means $75,000 for MFS? The law itself says adjusted gross income is not the number shown on the tax return for AGI.

2) Those with other computations on their returns that depend on AGI. Examples are Social Security benefits, student loan interest, and tuition credits and deductions. Not to mention, recovery rebate credits.

If a taxpayer clearly does not fall into either of these categories, I will prepare a return showing the unemployment amount after the $10,200 deduction. I’m not sure e-filing will accept returns with 1099-G tax withheld, and no 1099-G income. They must have been able to do that in 2009. We’ll find out soon enough.

You can do whatever you want.

3 Replies 3
Level 2

After the 10.2k reduction, the taxpayer may qualify for a higher stimulus.  IRS will have to review returns again in a few months to settle up.  I think the date is July 15.

0 Cheers
Level 15
Level 3

In my 43+ years of preperation, (back when you did it all "by hand" on: Oh, the pain, the pain..............!) paper forms, and you actually did something called calculations, and the horror's of having to remember all the myraid rules and stuff and things, YES, a resounding YES.  I REMEMBER when there was a reduction in the amount of taxable unemployment. Along with many other now defunked and weird code changes. Anybody remember President Reagan and his "tax acts and changes"?  THANK YOU for taking us dinosaurs down memory lane and for the heads-up to all the "newbies" that the only constant is CHANGE.  And thank the industry for the software that now makes it look "painless".  If only the powers that be would consider the taxpayer in all these new and improved tax codes and codifications. I wonder how many feet these have added to the 13+ linear feet of IRS/IRC that now no one person can understand/decipher or apply consistently?  Thank you again, Bob. Cheers to you.