UNEMPLOYMENT BENEFITS

The American Rescue Plan, signed into law last week, exempts from federal taxable income up to $10,200 in unemployment benefits received in 2020 if your “household” modified AGI is less than $150,000. 

This exemption applies to all unemployment received in 2020, and not just the special federal $600 per week extended benefit passed as part of the stimulus package.  It includes “regular” unemployment benefits paid under a traditional state program.

The $10,200 exemption is per spouse on a joint return.  So, if both spouses received unemployment in 2020, they can each exclude up to $10,200.  The $10,200 is “per spouse” – as IRS guidance explains, if one spouse received $20,000 in unemployment and the other received $5,000 the total amount you can exclude is $15,200 ($10,200 + $5,000).

Your “modified” AGI for claiming the exemption is your AGI before subtracting the exclusion of unemployment benefits.  The $150,000 income threshold applies to Single filers, Head of Household filers, and joint filers.  If you are single or a Head of Household you can exclude up to $10,200 if your AGI is $149,999 or less.  If you are married filing a joint return you can exclude up to $10,200 each if your AGI does not exceed $149,999.  The exclusion does not “phase-out” at $150,000.  If your AGI is $149,999 or less you can exclude $10,200 per taxpayer.  If your AGI is $150,000 or more you cannot exclude anything – all of your unemployment is fully taxable.  So, $1.00 in actual income can increase your net taxable income by at least $10,200 or $20,400!  I do not know yet how this $150,000 threshold applies to separate returns filed by a married couple.

The gross amount of unemployment received, as reported on Form 1099-G, is reported on Line 7 of Schedule 1.  The amount of the exclusion is reported as a negative number on Line 8.  Write “UCE” and show the amount of the exclusion claimed in parentheses on the dotted line at Line 8. 

A single filer who received $16,000 in total unemployment would enter $16,000 on Line 7.  If the taxpayer had no other “other income” to report on Line 8 he or she would enter ($10,200) on Line 8.  If these were the only entries on Schedule 1 Part 1 Line 9, carried over to the Form 1040 or 1040-SR, would be $5.800. 

Go here for the official IRS explanation of how to claim the exemption.

TTFN