The American Rescue Plan Act of 2021 excludes from income the first $10,200 in unemployment compensation received in 2020 per taxpayer on their 2020 tax return. The new provision applies to taxpayers with an AGI of less than $150,000. The IRS has recently released a new unemployment compensation exclusion worksheet and updated instructions on how to file 2020 tax returns that contain unemployment income.
The exclusion amount calculated on the worksheet flows back to Schedule 1 (Form 1040), line 8. UCE will print on the line next to line 8 identifying the amount as the unemployment compensation exclusion.
- Please note that this change can have significant impacts on your state return. We are in the process of working through the states and making any modifications needed to handle the new federal changes based on the state laws as we know them today. We STRONGLY recommend you pay close attention to the state portion of the return. If you find any issues or have any concerns please reach out to VITA/TCE support with a detailed explanation and an example return.
- Create a return tag if you choose to hold the state portion of the return to file once your state has made a decision on whether it will conform or not to the federal changes.
Returns filed prior to the release of the Federal Update in TaxSlayer Pro will automatically re-calculate to exclude the non-taxable portion of unemployment income. This is important – Please make sure you have a copy of the originally filed federal and state return before you open these returns. The original copy of the federal tax return and the state return will be needed to plug in the original column on the Amended federal and state forms once the IRS gives guidance on if or when an amended return needs to be filed. The original return can be accessed from Client List by using the Tools dropdown to access “Client Status”. Scroll down the Client Status page to locate the Federal transmission. The left print icon, when clicked, will open a new window that includes the original Federal transmission.
- We are aware the State PDF is not generating in Client Status and have this defect reported to development (Issue 5952).