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Tax Amendments Due To Changed Unemployment Taxation

Question:
Amendment due to Unemployment Compensation Taxation Exclusion - UCE
Article, Solution:
Unemployment Compensation Exclusion

Grey Owl by Zdenek Machácek

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

  • If you e-Filed on or after March 16, 2021, you don't have to do anything; you do NOT have to file a tax amendment.
  • If you e-Filed on or before March 15, 2021, follow the instructions below. 

Due to the recent changes from the American Rescue Plan Act (ARPA), the IRS is excluding up to $10,200 of Unemployment Income ($20,400 if Married Filing Joint Return - each spouse receiving unemployment compensation does not pay IRS income taxes on unemployment compensation of up to $10,200).

A taxpayer federal tax amendment is not required for the following:

  1. As a result of this adjustment, the 2020 federal AGI (Adjusted Gross Income) changed. A taxpayer's claimed tax credit might also change and result in a higher/lower tax refund. The IRS will adjust this and issue the payment.
  2. The IRS has started to direct bank deposit or mail out bank checks in late May, 2021 for this supplemental or plus-up payment to respective taxpayers with filed and accepted 2020 tax returns.

We at eFile.com do not have specific dates when payments for individual taxpayers will be made, nor does the IRS have a lookup tool for this information.

A taxpayer federal tax amendment is required for the following:

  1. Due to the 2020 tax return AGI change, a taxpayer might now qualify for one or more tax credits, like the Earned Income Credit, etc. Credits that did not qualify based on the original 2020 tax return eFiled and accepted 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.
  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
Your other credits, etc. How do you know what has changed?
Sign in and click on your My Account: (see image below My Account -> 2020 Tax Return - shown with an e-file date.) 1. Click on the link PDF 2020 Tax Return, then 2. click on the link below I'd like to see a working copy of my return. You can compare both PDF returns (original and adjusted) in your browser tab.
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 should however prepare and 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. 
  • You can not eFile a state tax amendment via your eFile.com account, but you can prepare, download, and print the adjusted state forms you created from your My Account page.  Some states use the same form for tax amendment than the income tax return by simply checking off a box on top of the form indicating that you are filing it as a tax amendment. At the bottom is a list that you should file a tax amendment for; details on your state(s) tax amendment process.

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 now change because of the APRA Unemployment Income changes. See instructions on how to prepare and file a state tax amendment.

eFile.com Suggestion:

  • Wait until you have received the IRS supplemental or plus-up payment.
  • Compare your e-Filed PDF tax return prior to March 15, 2021 with the newly created PDF return after March 16, 2021. Both returns are in your My Account (see instructions below).
  • Based on the comparison prepare and file an IRS (tax amendment instructions) and/or state tax amendment (see below).

Review your adjusted Returns and complete your State Tax Amendment:

  1. Sign in to your eFile.com Account
  2. View, download your original e-Filed Tax Returns(IRS/State) PDF from your eFile.com account.
    • My Account -> 2020 Tax Return - shown with an e-file date.
      Download Tax Return
  3. A working copy PDF of your UCE adjusted Tax Return(s), showing your updated IRS and State 2020 AGI amounts.
    • My Account -> Click link "I'd like to view a working copy of my return".
    • After a few moments, click the View Return button that will appear.
      Download Working Copy of Tax Return
  4. Go To https://www.efile.com/tax-amendments-by-state/ and click on your state in the list at the bottom of the page.
  5. 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.
  6. Complete the state amendment form as instructed.
  7. Print, sign, and date the state amendment form. 
  8. 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
If your 2020 Wisconsin income tax return got accepted, you do NOT need to amend your 2020 WI return because WI does not adapt the federal unemployment compensation exclusion.
N/A

1) Prepare means you prepare a state tax amendment by loading the form from the state page. Then complete, sign and download, print and mail it to the state with associated documents as listed on the form. You can also prepare the corrected or updated state income tax return from your eFile.com account. Review, download the results from your My Account. There, click on the link I'd like to view a working copy of my return. This PDF will reflect any changes you made after you e-Filed your return(s). 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 from your eFile.com account. Make all the necessary corrections on your state pages and then click on your My Account. There, click on the link I'd like to view a working copy of my return. This PDF will reflect any changes you made after you e-Filed your IRS and State return(s). On the PDF at the top of the page you would see a check box or oval space, please check that to indicate you are filing a state tax amendment. The mailing address should be on the form, if not click click on the state related page

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