A Second Look at the American Rescue Plan Act

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We welcome back guest blogger Omeed Firouzi, who works as a staff attorney at the Taxpayer Support Clinic at Philadelphia Legal Assistance, for a discussion of the latest developments in the IRS position and administration of the part of the act dealing with the exclusion of certain unemployment benefits.  The process of the change in the position at the IRS on how to calculate the unemployment compensation excluded by statute from income provides an interesting process to watch, similar to the process last spring that led to changes in how the Service approached the payment of the stimulus checks.  Keith

Since my last post on the American Rescue Plan Act, the IRS has provided two critical updates regarding the $10,200 unemployment compensation tax forgiveness provision of the law:

  1. A taxpayer’s modified adjusted gross income, for purposes of claiming the exclusion, should disregard the amount of unemployment compensation the taxpayer receives. Therefore, if your unemployment compensation in 2020 is what pushes you above the $150,000 adjusted gross income limit for claiming the exclusion, you can still be eligible for the exclusion. You do not count the unemployment compensation you got in 2020 as part of your income when factoring the exclusion. This IRS interpretation of the statute comes on the heels of a debate within the tax community as to how to read this section of the law. Last week, the IRS took the position in its unemployment compensation exclusion instructions that a taxpayer’s unemployment compensation does count towards the $150,000 income limitation for eligibility. Now, they’re saying otherwise.

Comments

  1. Nina Tross says

    The following is not an accurate statement: the IRS is trying to make it happen, but has not yet issued any official announcement that they will automatically adjust all returns with unemployment income. Unless you are reading something on the IRS page that I have missed.

    “The IRS has officially announced that taxpayers who already, before enactment of the American Rescue Plan Act, filed 2020 tax returns reporting their unemployment compensation should not file amended 2020 returns. Instead, the IRS will automatically adjust their accounts to refund any amounts owed to these taxpayers. This news certainly comes as a relief to taxpayers and tax professionals.”

  2. Bob Kamman says

    Here is what Commissioner Rettig told the House Ways and Means Committee on March 18, when asked about automatic amended returns for those who have already paid tax on unemployment compensation. It’s at 49:00 into the Committee’s website video:

    “One issue that we are looking at is our ability to distinguish in a husband-wife situation, two couples, we should be excluding automatically $10,400 rather than just $10,200 and the issue is were both unemployed or is it one person unemployed. We will get through that.”

    What is he trying to say? Like me, he is from a community-property state. I am wondering how they will know whether the unemployment reported on a joint return is community income, and how much. I’m also concerned that telling everyone to delay past the filing deadline removes the opportunity to file superseding returns, when a couple’s AGI is more than $150,000 but separately they each have less than that. A change in filing status from joint to separate might save thousands of dollars.

  3. Bob Kamman says

    In response to the comment by Nina Tross:

    Another tax pro, a CPA in Arlington, Virginia, points out today on a practitioner website that the IRS message on amended returns is a moving target:

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

    On Tuesday [of this week] it said “If you have already filed your 2020 Form 1040 or 1040-SR, there is no need to file an amended return (Form 1040-X) to figure the amount of unemployment compensation to exclude. The IRS will refigure your taxes using the excluded unemployment compensation amount and adjust your account accordingly. The IRS will send any refund amount directly to you.”

    But then on Wednesday it said “If you have already filed your 2020 Form 1040 or 1040-SR, you should not file an amended return at this time. The IRS will issue additional guidance as soon as possible.”.

  4. Omeed Firouzi says

Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.

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