The 2021 American Rescue Plan Act was signed into law by President Biden on March 11th, 2021.
Since this brand new legislation includes a number of changes that affect 2020 income tax returns, we want to bring you up to date on what we know thus far, particularly with regard to the change in taxation of Unemployment Insurance benefits:
- How the Unemployment Compensation Exclusion is Calculated:
- The first $10,200 ($20,400 if Married Filing Jointly) of unemployment benefits for 2020 will be nontaxable for taxpayers with adjusted gross income (AGI) of less than $150,000
- If adjusted gross income is $150,000 or greater, the full amount of unemployment compensation is fully taxable
- What if Your 2020 Federal Income Tax Return Has Already Been Filed - Without Taking the Exclusion:
- According to the IRS: "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." CLICK HERE for more information on exactly HOW and WHEN the IRS will accomplish this task.
- What about New York State?
- NY State tax treatment of unemployment compensation remains unchanged: it is fully taxable on NY State returns
- CLICK HERE for more information
We will continue to update you on the status this legislation as soon as we receive additional guidance from the IRS and New York State.
Click Here for a complete summary of the 2021 American Rescue Plan Act.