The American Rescue Plan Act of 2021 had many interesting components, one of which is 2020 unemployment compensation becoming tax free in certain situations. Many of those who filed early and fall under these provisions will likely have additional tax savings coming their way.
The main requirement, besides actually having collected unemployment, is a ‘MAGI’ requirement of $150,000 (Married Filing Jointly). If ‘MAGI’ is over $150,000, than you likely won’t have to make a change unless you can adjust your return to lower your AGI. For this calculation. ‘MAGI’ is basically AGI – Unemployment compensation.
Where do we look to see if we need to contact our accountants? Please see above for an example! Look on line 8 of Schedule 1 of your Form 1040. If it is blank and there is no mention of "UCE" which stands for unemployment compensation exclusion, and you feel you are eligible for this benefit, you may be eligible for this deduction.
Please consult your tax advisor if you think you fall under this umbrella and you filed early, as this is not tax advice. This is simply a tax planning strategy that we suggest our clients explore. The IRS has said that you may not have to file an amended return to get a refund, but that can’t be known for sure at this time.
Good luck this tax season!