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Unemployment Compensation Exclusion


Yardley CPA

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On 3/18/2021 at 12:40 PM, Jrkmbowman said:

Does anyone know when ATX will actually update?  I have 2 clients waiting to file because of this.

I saw a post on the official ATX community site that said week of 3/22.  This was according to a poster that had contacted ATX support.

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From ATX News Feed:

It’s important to know when the ATX software will be updated based on IRS guidance due to the American Rescue Plan Act of 2021’s changes to unemployment taxability.

By March 29, 2021, we will have the software updated to ensure these calculations are based on IRS e-filing guidance and are auto-calculated.

The majority of tax returns filed using ATX are e-filed rather than paper filings. We want you to be aware the recently released IRS guidance for handling unemployment compensations due to the American Rescue Plan Act of 2021 changes are for paper filings, not those who choose to e-file.

We have chosen not to provide you with workarounds and manual calculations to input the pertinent data into your tax preparation filing software. These workarounds would be drawn from recently released IRS guidance for paper filings and possibly cause rework at a later date.

At Wolters Kluwer, we are here to support you during busy season and especially during the peak of your compression period. We believe taking the time to act deliberately and ensure accuracy is the best way to support you during busy season. We want you to be right the first time, not waste time and lose productivity because a workaround didn’t fully capture the information you need in current and future years.

Make sure to check the Latest Impacts to 2021 Tax Season Filing Dates blog post for more information on State and Federal filing changes. 

Wolters Kluwer – when you have to be right.

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Federal exclusion automatically reduce AGI so PTC affected. Do I need to modify?

In VA, I think need to adjust amount on VA Sch ADJ but I don't know where.

Unemployment benefits received during the taxable year and included in federal adjusted gross income may be subtracted on the Virginia return. The amount of the subtraction is the amount of unemployment benefits that were included on your federal return. 

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23 minutes ago, KYOUNG said:

Federal exclusion automatically reduce AGI so PTC affected. Do I need to modify?

In VA, I think need to adjust amount on VA Sch ADJ but I don't know where.

Unemployment benefits received during the taxable year and included in federal adjusted gross income may be subtracted on the Virginia return. The amount of the subtraction is the amount of unemployment benefits that were included on your federal return. 

Do I need to override Subtraction Code 37 or Addition FEDERAL INCLUDES UCE -$10,200?

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38 minutes ago, TAXMAN said:

Has anyone checked the PTC payback or additional credit yet to see if that is cal correctly? I know Judy was having some issues with it as well.

 

23 minutes ago, KYOUNG said:

Federal exclusion automatically reduce AGI so PTC affected. Do I need to modify?

In VA, I think need to adjust amount on VA Sch ADJ but I don't know where.

Unemployment benefits received during the taxable year and included in federal adjusted gross income may be subtracted on the Virginia return. The amount of the subtraction is the amount of unemployment benefits that were included on your federal return. 


From Drake's and other providers' announcements (not ATX so far), the software vendors are awaiting clarification from the IRS regarding the PTC calculation. 

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The IRS has updated their instructions for unemployment exclusion.  The items where MAGI must include the excluded unemployment are listed (officially now):

https://www.irs.gov/forms-pubs/new-exclusion-of-up-to-10200-of-unemployment-compensation

 

(Also, I've heard that efiles are being rejected if there was withholding on the 1099-G but the total unemployment was less than $10,200.  IRS plans to fix it.)

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When figuring the following deductions or exclusions from income, if you are asked to enter an amount from Schedule 1, line 7 enter the total amount of unemployment compensation reported on line 7 (unreduced by any exclusion amount) and if you are asked to enter an amount from Schedule 1, line 8, enter the amount from line 3 of the Unemployment Compensation Exclusion Worksheet. See the specific form or instructions for more information. If you file Form 1040-NR, you aren't eligible for all of these deductions. See the Instructions for Form 1040-NR for details.

Taxable social security benefits (Instructions for Form 1040 or 1040-SR, Social Security Benefits Worksheet)

IRA deduction (Instructions for Form 1040 or 1040-SR, IRA Deduction Worksheet)

Student loan interest deduction (Instructions for Form 1040 or 1040-SR, Student Loan Interest Deduction Worksheet)

Nontaxable amount of Olympic or Paralympic medals and USOC prize money (Instructions for Form 1040 or 1040-SR, Schedule 1, line 8.)

The exclusion of interest from Series EE and I U.S. Savings Bonds issued after 1989 (Form 8815)

The exclusion of employer-provided adoption benefits (Form 8839)

Tuition and fees deduction (Form 8917)

The deduction of up to $25,000 for active participation in a passive rental real estate activity (Form 8582)

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2 hours ago, TexTaxToo said:

(Also, I've heard that efiles are being rejected if there was withholding on the 1099-G but the total unemployment was less than $10,200.  IRS plans to fix it.)

That may have already been fixed.  I filed at least one where this was the case and have not had any rejections this season.

There were rejections for returns filed with forms 8917 and 8962 that the IRS needs to fix though.

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I began following the guidance issued by IRS last week, which was to enter “UCE” on the line 8 worksheet along with the excluded amount. I wasn’t aware that the worksheet was coming out. 

When the rollout occurred, it updated all of the returns I’d already adjusted and duplicated the exclusion. I guess I should’ve waited. 
 

Just a word of caution to anyone out there who may be in the same boat. 

 

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22 minutes ago, Jrkmbowman said:

Ok so Virginia is subtracting the full amount of the unemployment $15,920 not just the $5720.  Has anyone figured out a way around this?

 

VA needs to stop using line 7 as the amount to exclude. It needs to use the line with the end result after the amount has been lowered to 0 or the amount has been substracted $10,200 or 20,400.

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30 minutes ago, cgonzalez1013 said:

Has anyone reviewed the worksheet in ATX?  Based on what I read on the IRS update earlier today, I think ATX is calculating line 1 of the worksheet incorrectly by including the unemployment in that line.  Can someone please let me know if I am misunderstanding this.

https://www.currentfederaltaxdevelopments.com/blog/2021/3/23/irs-makes-a-significant-modification-to-computation-of-arpa-excludable-unemployment-compensation

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As Slippery Pencil posted above, the IRS has revised its worksheet for calculating the unemployment by using the literal writing of the word "section" contained in sec 9042 of HR 1319 rather than Congress' intent.

What this means is that the $150K AGI limitation is computed by excluding all of the unemployment. 

Here's the IRS page that contains the updated calculations for the worksheet. Scroll to the bottom.  This page was updated as of today:

https://www.irs.gov/forms-pubs/new-exclusion-of-up-to-10200-of-unemployment-compensation

 

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26 minutes ago, Slippery Pencil said:

If the idiots who write the laws and the goons hired to enforce them don't know what they mean, how is anyone else suppose to?

If this were simple, we would be in another line of work.  Sad, but it is the reality of the business, those who make the laws/rules/reporting requirements are unlikely to ever had to deal with the consequences of their actions, and there is an entire industry which profits from complication.  No different than any other trade though, some learn to do, some pay t get it done. When I was coming up, it was easy for someone to learn to fix their own auto, now, nearly impossible (and one city in CA is attempting to ban things like torque wrenches, air tools, and other things I have had for decades, from being used at home).

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