IRS makes more people eligible
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The IRS on Tuesday released guidance on new unemployment tax relief that makes more people eligible for the allowance.
The American Rescue Plan waives federal tax on up to $ 10,200 in unemployment benefits collected last year, per person.
But the $ 1.9 trillion Covid relief measure, which President Joe Biden signed almost two weeks ago, limit the tax cut to people who earned less than $ 150,000 in 2020. This threshold is the same regardless of filing status, as single or married.
Until today, the IRS reported that taxpayers had to count unemployment benefits in their 2020 income to determine if they were eligible for the tax break.
The federal agency said on Tuesday advice that workers can exclude unemployment benefits from their calculation of modified adjusted gross income, the official eligibility barometer.
The rule change means more people will fall below the $ 150,000 income limit.
“It definitely extends it,” said Jeffrey Levine, chartered financial planner, accountant and planning director at Buckingham Wealth Partners in Long Island, New York, of the pool of eligible taxpayers.
“It’s a very generous interpretation [of the legislation],” he added.
The IRS did not immediately return a request for comment.
Consider the example of a married couple who files a joint tax return. They had employment income of $ 140,000 last year. They also each had $ 10,200 in income from unemployment benefits.
Under previous IRS guidelines, this couple would not have been able to qualify for the tax break, due to a joint income of $ 160,400 including unemployment assistance.
The IRS recalculation makes them eligible. Their income would be $ 140,000 for the purpose of determining their qualification. Each spouse could exclude $ 10,200 in unemployment benefits from federal tax.
The new directives do not change the amount of tax-exempt unemployment benefits.