Taxes

IRS guidance on reporting 2020 unemployment compensation

Update: The issue is now resolved in tax filing software.

The American Rescue Plan Act of 2021 (P.L.117-2) includes a provision allowing taxpayers with income under $150,000 to exclude $10,200 of 2020 payments from their taxable income. But the details on how to claim this tax benefit are not clear at this time.

IRS urges those who have already filed their 2020 tax returns to not file an amended return. Instead, wait for further guidance coming from IRS soon. This seems to indicate that a solution will be offered that does not require the taxpayer to manually amend their tax return.

For those who still need to file a 2020 tax return, IRS says that we should use the Unemployment Compensation Exclusion Worksheet and reported separately from the taxpayer’s unemployment payments using updated IRS instructions. We are waiting for those specific instruction details.

Both changes will trigger tax filing software companies to update their software and that will take some short additional time. The most recent IRS statement on the topic is here.