IRS Updates Unemployment Exclusion Threshold

As discussed in earlier posts, the American Rescue Plan, which was enacted on March 11, 2021 provides a retroactive exclusion for unemployment benefits received during 2020 (up to $10,200 per taxpayer).  This exclusion is available for taxpayers with adjusted gross income of under $150,000. 

In its original guidance, the IRS indicated that, when computing income for the purpose of this threshold, all unemployment benefits received (before applying the exclusion) had to be included.

As of March 23, 2021, the IRS website has revised guidance indicating that the unemployment received by a taxpayer is not included when determining if a taxpayer’s income is under the $150,000 threshold.  This change will make the exclusion available to more taxpayers.

Separately, as of the date of this posting, New York State has been silent about the federal exclusion and its effects on New York income tax returns.  Practitioners should consider waiting to finalize returns for clients who received unemployment compensation to see if New York provides any guidance or comment.