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The IRS on Tuesday issued guidelines on a new unemployment tax break that would entitle more people to the benefit.
The U.S. rescue plan waives federal taxes on up to $ 10,200 unemployment benefits collected per person last year.
But the $ 1.9 billion Covid emergency relief measure, signed by President Joe Biden nearly two weeks ago, limited the tax cut to people earning less than $ 150,000 by 2020. The threshold is the same regardless of the filing status such as single or married.
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To date, the IRS has indicated that taxpayers should count unemployment benefits as part of their 2020 income when determining whether they are eligible for the tax break.
The federal agency said Tuesday in the lead that employees could exclude unemployment benefits in their calculation of adjusted gross income, the official barometer for eligibility.
The rule change means more people will fall below the $ 150,000 income limit.
“It certainly expands it,” said Jeffrey Levine, a certified financial planner, accountant and chief planning officer at Buckingham Wealth Partners in Long Island, New York, about the pool of eligible taxpayers.
‘This is a very broad interpretation [of the legislation], “he added.
The IRS did not immediately return a request for comment.
Take the example of a couple filing a joint tax return. They had an income of $ 140,000 last year. They also each had $ 10,200 income from unemployment benefits.
Under prior IRS guidance, this couple would not have qualified for the tax break, due to a combined income of $ 160,400 if they set off unemployed assistance.
The new IRS calculation makes them eligible. Their income would be $ 140,000 for determining their qualification. Each spouse could exclude $ 10,200 unemployment benefits from federal taxes.
The new guideline does not change the amount of tax-free unemployment benefits.