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