Expected Retroactive Unemployment Change

On Saturday, March 6, 2021, the Senate passed its own version of a bill that contains many tax provisions.  The bill differs from the earlier version passed by the House of Representatives, so it will still require another vote in the House before it can be enacted into law.  The final provisions are expected to stay the same, but until the House vote, there is always the possibility of delays or changes in the bill. 

The Senate bill reportedly contains a proposed provision that would affect 2020 tax returns.  As of this writing, the Senate still has not released the text of the portion of the bill that addresses this proposed exclusion.  The proposed provision reportedly would exclude up to $10,200 of unemployment benefits for taxpayers with adjusted gross income of up to $150,000.  (No exclusion would be allowed for taxpayers with adjusted gross income above that level.) 

Practitioners should identify clients who received unemployment benefits during 2020 and who could benefit from this proposed provision.  For now, practitioners should delay the filing of returns for such clients unless/until the provision becomes law. 

If/when the provision becomes law, it will take the IRS time before it can update its systems to process returns with such an exclusion.  It may be necessary to put such clients on extension.  For affected clients who have already filed 2020 returns, such returns will, most likely, need to be amended.