New Exclusion on Unemployment Compensation 2021

A new exclusion from up to $10,200 has been introduced

The American Rescue Plan, enacted on March 11, 2021, provides that under specific criteria, you don’t have to pay tax on unemployment compensation of up to $10,200.

If your modified adjusted income (AGI) is less than $150,000, the American Rescue Plan excludes from income up to $10,200 of unemployment compensation paid in 2020. Simply put, a client may not have to pay tax on unemployment compensation of up to $10,200.

If individuals are married, each spouse receiving unemployment compensation does not have to pay tax on unemployment compensation of up to $10,200.

Amounts over $10,200 for each individual are still taxable.

If the modified AGI is $150,000 or more, unemployment compensation may not be excluded.

The exclusion should be reported separately from unemployment compensation.

For those who have received unemployment benefits but have not yet filed their returns, the IRS suggests waiting until revised forms are instructions are available before filing.

To learn more about this new exclusion, visit the updated IRS instructions or contact Eddie Patel Inc. We’re happy to support you.