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IRS Stimulus Check #3 - $1,400 per adult and child  More info
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IRS Expands Eligibility Pool for Exclusion of 2020 Unemployment Benefits

IRS Expands Eligibility Pool for Exclusion of 2020 Unemployment Benefits
Ines Zemelman, EA
29 March 2021

When the US Government passed the American Rescue Plan Act of 2021, one of the highlights was the ability to exclude up to $10,200 of unemployment income for households earning under $150,000.

From the passage of the act until Tuesday, March 23, taxpayers had to count unemployment benefits as part of their 2020 income when determining if they qualify for the tax break.

On Tuesday, the IRS announced additional guidance which effectively expands the pool of people who will meet this exclusion.

  • Taxpayers can exclude jobless benefits from the initial calculation of modified adjusted gross income (MAGI), the official barometer for eligibility
  • Previously, taxpayers had to first include their jobless benefits in their MAGI

Working example:

A married couple filing MFJ with income of $145,000 and each with unemployment income of $10,200.

Under prior guidance, this couple would not have qualified for the tax break as their MAGI would have included the unemployment income of $20,400 ($10,200 * 2 taxpayers). Under new guidance, they would also be eligible for this exclusion.

Do not file amended returns if you already filed

As a reminder, the IRS has indicated to not file amended returns to claim unemployment benefits — the IRS will apply them automatically.

If you have not yet filed, your tax preparer will take this into account when preparing your tax returns. Note, your return takes additional time to process while the tax software companies update tax forms to accommodate new guidance.

Ines Zemelman, EA
Founder of TFX