Syracuse, NY – The IRS has issued guidance on how to take advantage of the American Rescue Plan’s exclusion of up to $ 10,200 in unemployment benefits from federal income tax.
Taxpayers who earned less than $ 150,000 (adjusted gross income) in 2020 can shield the first $ 10,200 ($ 20,400 for couples) of unemployment benefits they received last year from federal income tax.
Unemployment benefits greater than $ 10,200 will remain taxable. And households that made $ 150,000 or more in the last year will continue to pay income taxes on their total unemployment income.
The IRS says the exclusion should be reported separately from your unemployment benefit. For file folders, the IRS has provided updated instructions and an Unemployment Compensation Exclusion Worksheet to determine the exclusion and the amount to be entered on Appendix 1 of Form 1040, lines 7 and 8.
For people who create and file their tax returns electronically, their tax software should do most of the work for them. However, you should check with your software provider to see if they have updated their programs to determine the level of the excluded unemployment income.
The IRS said it was working with software providers to update their software. As a result, those filing electronically may want to withhold submitting their returns until their software vendors confirm that they have installed the update.
Those who received Unemployment Benefit last year and have already filed their 2020 tax return may need to file an amended declaration (Form 1040-X) at some point to apply for the exemption. However, the IRS said these individuals should not file an amended statement until the agency issues additional guidance.
The Century Foundation, a progressive think tank, estimates 40 million Americans received more than $ 580 billion in total in unemployment insurance payments over the past year. The exemption could save a person $ 1,000 or more in federal income taxes, depending on their tax rate, the foundation said.
Keep in mind that some states, including New York, still tax the full amount of unemployment benefits.
New York State Senator Jessica Ramos of Rafael Espinal, president of the Queens and Freelancers Union, recently urged lawmakers to amend state tax law to exclude income taxes on unemployment benefits, and the Cuomo administration appeared to be up for the call, according to the Daily News welcome.
Rick Moriarty covers business news and consumer issues. Do you have a tip, a comment or a story idea? Contact him at any time: E-Mail | Twitter | Facebook | 315-470-3148