Unemployment Compensation Exclusion for 2020

Question:
Amendment due to Unemployment Compensation Exclusion UCE; how do I get my refund? Do I need to file an amendment?



Article, Solution:
Unemployment Compensation Exclusion

Grey Owl by Zdenek Machácek

The following information applies to 2020 Returns only.

The Unemployment Compensation Exclusion (UCE) and your 2020 Tax Return:

Due to the changes from the American Rescue Plan Act (ARPA), the IRS excluded up to $10,200 of Unemployment Income or $20,400 if Married Filing Joint Return and each spouse received unemployment compensation during 2020. If only one spouse collected, then the exclusion was $10,200.

A taxpayer federal tax amendment is not required for when, as a result of this adjustment, the 2020 federal AGI (Adjusted Gross Income) changed. An amendment is not required when a taxpayer's claimed tax credit change and result in a higher/lower tax refund. The IRS will adjust this and issue the payment.

The IRS had started to direct bank deposit or mail out bank checks in late May of 2021 for this supplemental or plus-up payment to respective taxpayers with filed their 2020 Return. If you do not receive a refund when you are owed one for any reason, contact the IRS; they are supposed to be able to provide guidance on receiving this refund and should assist.

The IRS did not provide a tool or method to track payment status of these refunds; however, they may be able to provide details when you call.

A federal tax amendment is required for the following:

  1. Due to the 2020 Tax Return AGI change, you might now qualify for one or more tax credits, like the Earned Income Credit. These would be credits that you did not qualify for based on the original 2020 Tax Return prior to March 15, 2020. As a result, you might now qualify for additional tax credits. First, you will need to find out if you indeed qualify or not. Secondly, in order to claim these credits, you will have to file an IRS and/or state tax amendment. However, we suggest not to file an amendment until you have received the IRS supplemental or plus-up payment and the letter from the IRS. If you have received this and did not get all of what you are entitled to, you should file an amendment.
  2. State Tax Return(s): The change of your 2020 IRS tax return AGI - adjusted gross income - should be reflected on your state tax return(s), even though it might not necessarily change the tax return results of your 2020 state tax return(s). State specific tax amendment instructions are listed below.

The instructions below are for taxpayers that filed their tax return on or before March 15, 2021.

UCE related IRS Tax Amendment Update

IRS 2020 Tax Amendment?
Explanation
1. Example EITC: You DID claim the EITC
If you did claim the EITC or Earned Income Tax Credit on your originally e-filed IRS return (see Form 1040 Line 27), but now as a result of the lowered 2020 AGI, you become eligible for an increased EITC amount, you do NOT have to file an IRS tax amendment as the IRS will make the adjustment. You may need to file state tax amendment(s).
2. Example EITC: You DID NOT claim the EITC
If you did not claim the EITC or Earned Income Tax Credit on your originally e-Filed IRS return (see Form 1040 Line 27), but now as a result of the lowered 2020 AGI, you do become eligible for the EITC, you should file an IRS tax amendment claiming the EITC and state tax amendment(s) to claim a similar or other state credits. However, the IRS confirmed that, for single taxpayers with no dependents in this situation only, an amendment is not needed and they will make this adjustment. 

The time to prepare any amendments for 2020 has passed; at the bottom of this page is a list that you should file a tax amendment for; details on your state(s) tax amendment process. If a federal or state amendment is needed, it will need to be filled in manually and mailed in.

Some state tax returns use the federal tax return Adjusted Gross Income (AGI is listed on Form 1040 Line 11) to calculate your state income tax. As such, your federal AGI may have changed because of the APRA unemployment income changes.


State Tax Amendments

  1. Go To https://www.efile.com/tax-amendments-by-state/ and click on your state in the list at the bottom of the page.
  2. For some states, the original income tax forms is also the tax amendment form and you might just have to check off that you are filing a tax amendment on the printed copy.
  3. Complete the state amendment form as instructed.
  4. Print, sign, and date the state amendment form. 
  5. Below is a sample letter we recommend you include with your UCE based state tax amendment to the state tax agency to explain the reason for your tax amendment. You can see a sample letter below, just replace the items in [] with your actual information.

Contact eFile.com with specific questions if you are affected by this and unsure if you need to file or how to file an amendment.


Sample Attachment Letter

To Whom it May Concern,

I am amending my [state] Tax Return in response the American Rescue Plan, recently signed into law. 

I filed my [state] Tax Return on [date]. The Federal AGI listed on that filing was [Original AGI].

After the American Rescue Plan Unemployment Exclusion Calculation, my updated Federal AGI is now [New AGI].

I am submitting this letter to you because I do not know if or when the IRS will update this AGI in their system, and I wanted to let you know why my Federal AGI was updated.

Best Regards,
[Name]

Tax Amendment Requirement by State

State
Tax Amendment Needed?
How to File 1) 2)
N/A for UEC. 2) Checkbox for all others
N/A
Yes Wait for IRS letter about supplement payment.
2) Checkbox Form 140X
N/A for UEC. 2) Checkbox for all others
No.  CA conforms with the IRS, however it is listed No because CA does not tax UE.
N/A
Yes. Wait for IRS letter about supplement payment.
1) Prepare 104X
Yes. Wait for IRS letter about supplement payment.
1) Prepare 200-01-x
Wait, Undecided. Wait for IRS letter about supplement payment.
2) Checkbox.
N/A
N/A
N/A
No. Any unemployment benefits deducted on federal Form 1040, Schedule 1, line 8, should be added back to the Idaho return as follows: If filing Form 40, report the income on Form 39R, Part A, line 6, “Other Additions.” If filing Form 43, don’t include the federal unemployment insurance exclusion on line 19, Other Income. Report the exclusion amount on Form 39NR, Part A, line 4, Column A, Other Additions.
N/A
Yes. Wait for IRS letter about supplement payment.
N/A
Yes. Wait for IRS letter about supplement payment. If, as a result, you qualify for other Iowa state credits etc. file a tax amendment.
1) Prepare IA 1040X if amendment is needed for other reasons
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
1) Prepare MD 502-X
See Notes. Wait for IRS letter about supplement payment.
Click the Notes link.
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox MO-1040
Yes. Wait for IRS letter about supplement payment.
2) Checkbox MT Form 2
Yes. Wait for IRS letter about supplement payment.
1) Prepare 1040XN
N/A
Yes. Wait for IRS letter about supplement payment.
1) Prepare NJ 1040X
Yes. Wait for IRS letter about supplement payment.
1) Prepare PIT-X
No. The Unemployment Compensation Exclusion Addback (UCE Addback) will be included on line 1 of Form IT-558, New York State Adjustments due to Decoupling from the IRC, using code A-011. Form IT-558 is named NY558 in our software. The software will automatically compute the UCE Addback and report it using code A-011 on line 1 of the NY558.
EF Message 0721 will no longer be generated when unemployment has been excluded from federal AGI.
N/A
Yes. Wait for IRS letter about supplement payment.
2) Checkbox ND-1
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
No, Oregon state will adjust Unemployment Compensation Exclusion (UCE). Wait for IRS letter about supplement payment. If, as result you qualify for other state credits etc. file an Oregon tax amendment.
2) Checkbox OR-40. If a tax amendment is needed for other reasons then Unemployment Compensation Exclusion.
No. Does not tax unemploymnet income.
Online 1) Prepare PA-40
No. UCE should be added back on RI Schedule M, Lines 2g.
N/A
Yes. File a new 2020 SC1040, and check the Amended Return box or write Tax Amendment on the form. Including all schedules and attachments, plus an Amended Return Schedule (Sch. AMD). Do not use the SC1040X to amend the 2020 South Carolina Individual Income Tax return. If your filing status is married filing jointly and both spouses received unemployment benefits, both can exclude up to $10,200. You may need to adjust any income-based nonrefundable tax credits you previously filed, especially the Earned Income Tax Credit, to reflect your lower income. Allow a minimum of 12 weeks for your amended South Carolina return to be processed.
2) Checkbox.
N/A
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox IN-111
Yes Wait for IRS letter about supplement payment. WV has conformed with the exclusion of the first $10,200 of unemployment compensation. The 1099-G should be submitted (MeF) or attached (if paper filed) to support the claim. Amended returns being filed to exclude the unemployment compensation will need to supply the corresponding 1099-G reflecting the amount of exclusion. Amended returns may be filed electronically or by paper.
2) Checkbox IT-140
N/A

1) Prepare means you prepare a state tax amendment by loading the form from the state page. Then complete, sign, download, print, and mail it to the state The mailing address should be on the form; if not click click on the state related page.

2) Checkbox means you can prepare the state tax amendment on the regular state tax form rather than fill out a separate amendment form. The mailing address should be on the form, if not click click on the state related page

WatchIT