Unemployment Compensation For 2020

How the American Rescue Plan Act Affects You

OUR TAKE: Check out this video for a summary of the changes to 2020 unemployment.

BIGGEST TAKEAWAY: Unemployment Compensation

• On March 11, 2021, the American Rescue Plan Act (ARPA) has put into place a $10,200 unemployment exclusion per taxpayer for your 2020 taxes. This means that taxpayers can exclude up to $10,200 in unemployment compensation.
• This exclusion will take effect provided that your Modified Adjusted Gross Income (MAGI) is less than $150,000. In this case, MAGI is your Adjusted Gross Income (AGI) minus your unemployment compensation.

THE CHANGES:

• Schedule 1 line 7 and 8 is where you will find the biggest change.
• If eligible, you will see the Unemployment Compensation Exclusion (UCE) on line 8. If you see UCE on the side of line 8, there will be some element on Line 8 that is Unemployment Compensation.
• IF that line is left blank, that could mean 1 of two things:
  • Their MAGI is not under $150,000 and do not qualify
  • They did qualify and have excluded unemployment compensation.

HOLISTIPLAN ACTIONS:

• If there is anything registered on Schedule 1 Line 7, the software will immediately fail that return so our OCR support can review the return and ensure everything is correct with unemployment compensation.
• You, the advisor, will be notified if the taxpayer is eligible for the unemployment compensation and we will provide our best educated guess on what the amount could be. That educated guess could be as simple as Line 7 being $5000, less than the $10,200. It gets more complicated when a MFJ return has $12,000 of unemployment since it's impossible for us to tell if that was claimed by one individual or both.

• Scenario Analysis will also capture and react depending on if UCE was claimed (top) or if it was an educated guess (bottom):