Modified Adjusted Income or MAGI

 If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation. If you file Form 1040-NR, you can’t exclude any unemployment compensation for your spouse.

The exclusion should be reported separately from your unemployment compensation. See the updated instructions and the Unemployment Compensation Exclusion Worksheet to figure your exclusion and the amount to enter on Schedule 1, line 8.  

When figuring the following deductions or exclusions from income, if you are asked to enter an amount from Schedule 1, line 7 enter the total amount of unemployment compensation reported on line 7 (unreduced by any exclusion amount) and if you are asked to enter an amount from Schedule 1, line 8, enter the amount from line 3 of the Unemployment Compensation Exclusion Worksheet. See the specific form or instructions for more information. If you file Form 1040-NR, you aren’t eligible for all of these deductions. See the Instructions for Form 1040-NR for details. 

• Taxable social security benefits (Instructions for Form 1040 or 1040-SR, Social Security Benefits Worksheet) 
• IRA deduction (Instructions for Form 1040 or 1040-SR, IRA Deduction Worksheet) 
• Student loan interest deduction (Instructions for Form 1040 or 1040-SR, Student Loan Interest Deduction Worksheet) 
• Nontaxable amount of Olympic or Paralympic medals and USOC prize money (Instructions for Form 1040 or 1040-SR, Schedule 1, line 8) 
• The exclusion of interest from Series EE and I U.S. Savings Bonds issued after 1989 (Form 8815) 
• The exclusion of employer-provided adoption benefits (Form 8839) 
• Tuition and fees deduction (Form 8917) 
• The deduction of up to $25,000 for active participation in a passive rental real estate activity (Form 8582) 

For more information please visit the IRS FAQ

Not calculating this correctly will result is an 8917 reject (If Form 8917 is present in the return, then 'TotalIncomeAmt' must be equal to Form 1040, 'TotalIncomeAmt'.)- the AGI on the 8917 has to match AGI on 1040

Federal Form Updates

 This morning, we released federal form updates relating to both the unemployment exclusion and the 5/17 due date. 

Important: The IRS has stated that there is no need to file an amended return (Form 1040-X) to figure the amount of unemployment compensation to exclude. The IRS will re-calculate and send the difference.

For states who have already declared their intentions on these issues, we are targeting a 3/29 release for those state forms. Please refer to our "Latest Impacts" landing page or to state government websites for individual state impacts.

Direct Debit Payment Dates: Please be aware that the IRS still has not changed their business rule for Direct Debit payment dates, and cannot currently accept Direct Debit payment dates that are after 4/15/21 (even though our software now has been updated to allow dates between 4/15 and 5/17). Until the IRS updates their rule for this, any returns with Direct Debit payment dates after 5/15 will be rejected by the IRS.

American Rescue Plan Act of 2021 Unemployment Compensation Update

It’s important to know when the Refunds Today software will be updated based on IRS guidance due to the American Rescue Plan Act of 2021’s changes to unemployment taxability.

By March 29, 2021, we will have the software updated to ensure these calculations are based on IRS e-filing guidance and are auto-calculated.

The majority of tax returns filed using Refunds Today are e-filed rather than paper filings. We want you to be aware the recently released IRS guidance for handling unemployment compensations due to the American Rescue Plan Act of 2021 changes are for paper filings, not those who choose to e-file.

We have chosen not to provide you with workarounds and manual calculations to input the pertinent data into your tax preparation filing software. These workarounds would be drawn from recently released IRS guidance for paper filings and possibly cause rework at a later date.

At Wolters Kluwer, we are here to support you during busy season and especially during the peak of your compression period. We believe taking the time to act deliberately and ensure accuracy is the best way to support you during busy season. We want you to be right the first time, not waste time and lose productivity because a workaround didn’t fully capture the information you need in current and future years.

Make sure to check the Latest Impacts to 2021 Tax Season Filing Dates blog post for more information on State and Federal filing changes. 

Wolters Kluwer – when you have to be right.

IRS News: Modernized e-File (MeF) Extended Maintenance Window

MeF Production and Assurance Testing System (ATS) environments will be unavailable due to maintenance from 12:01 a.m. through 1:00 p.m. Eastern time on Sunday, March 21, 2021. Please refrain from accessing the MeF Systems during this maintenance. Please monitor the MeF Operational Status page  for any future updates. We apologize for any inconvenience this may cause.

IRS News: Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline

 

IR-2021-59, March 17, 2021

WASHINGTON — The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days.

“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig. “Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to.”

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until Oct. 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn't subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.

State tax returns

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.

 

Winter storm disaster relief for Louisiana, Oklahoma and Texas

Earlier this year, following the disaster declarations issued by the Federal Emergency Management Agency (FEMA),  the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. This extension to May 17 does not affect the June deadline. 

For more information about this disaster relief, visit the disaster relief page on IRS.gov.

IRS News: MeF Extended Maintenance Window Sunday March 7

 MeF Production and Assurance Testing System (ATS) environments will be unavailable due to maintenance from 12:01 a.m. Eastern through 10:00 a.m. Eastern on Sunday, March 07, 2021.

Please refrain from accessing the MeF Systems during this maintenance.

Please monitor the MeF Operational Status page  for any future updates.

We apologize for any inconvenience this may cause.

CA Type of Coverage Exemption Codes

 There have been a lot changes to CA forms this year, and we know you are confused, but TaxWise is here to help!  Our Content team partnered with Solution Architect, Anthony Sampson, and out together this video that explains the changes and instructions for CA form 3853. Click the picture below to view.