More Unemployment Updates

Mar 25, 2021 | CPA Blog |

IRS Updates Unemployment Exclusion Threshold


As discussed in our previous blog, the American Rescue Plan, which was enacted on March 11, 2021 provides a retroactive exclusion for unemployment benefits received during 2020 (up to $10,200 per taxpayer). This exclusion is available for taxpayers with adjusted gross income of under $150,000.

In its original guidance, the IRS indicated that, when computing income for the purpose of this threshold, all unemployment benefits received (before applying the exclusion) had to be included.

As of March 23, 2021, the IRS website has revised guidance indicating that the unemployment received by a taxpayer is not included when determining if a taxpayer’s income is under the $150,000 threshold. This change will make the exclusion available to more taxpayers.

Depending on the states you’re filing in, many have been silent about the federal exclusion and its effects on state income tax returns. Preparers should consider waiting to finalize returns for clients who received unemployment compensation to see if the applicable states provide any guidance or comment.


Kiddie Tax and Unemployment Benefits


For younger taxpayers who are subject to the kiddie tax, unemployment benefits in excess of the $10,200 exclusion received by the child are treated as unearned income for the purpose of the kiddie tax, and the kiddie tax applies to such benefits.

The kiddie tax is computed on Form 8615, and it can apply to children under the age of 24 who are full-time students.


Source: M + O = CPE