The last year has been an anomaly to say the least, and because of that many tax payers have had to file for unemployment. Typically, unemployment income is taxable both federally as well as on the state level.
As of March, however, the American Rescue Plan enacted by the IRS has granted a new tax exclusion for those that received unemployment in 2020. We’re going to lay out exactly what that looks like and who qualifies.
Who is eligible?
If your adjusted gross income (AGI) is less than $150,000, up to $10,200 of your unemployment compensation in 2020 is considered exempt from any taxation. This applies both to individuals as well as those who are married filing jointly — if both spouses have received unemployment compensation, they are each tax exempt up to $10,200. However, if you make even one dollar more than $150,000 per year in total, you are not eligible.
What if I already paid my unemployment taxes?
If you have already filed your 2020 tax return, the IRS is asking that you do not file an amended return. They have just announced they will start reviewing those tax returns and issue any applicable refunds starting in May.
If you have not yet filed your 2020 tax return and you received unemployment in 2020, your exclusion will now show on your personal tax return. The exclusion should show as a negative on Line 8 of Schedule 1 in the amount of your unemployment compensation up to $10,200 per taxpayer.
The tax exclusion should be reported separately on your return from your employment compensation. For assistance with filling out your unemployment compensation as well as any exclusions, please reach out to us at Shaw & Associates — we can help you sort out exactly what needs to be filed, where, and on which form. There are also brief instructions on the IRS website.
As this continues to unfold and the IRS reviews returns that have already been filed, we will continue to provide the information you need to stay well-informed so you can make the best financial and tax decisions for your overall financial health. At Shaw & Associates, that is our highest priority!
To get in touch with us, visit our website and schedule a consultation or give us a call at 970-223-0792.