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The IRS issued guidelines on a new unemployment tax break that would allow more people to qualify for the benefits on Tuesday.
The American Rescue Plan waives federal tax on up to $ 10,200 in unemployment benefits collected per person last year.
But the $ 1.9 trillion Covid exemption measure signed by President Joe Biden nearly two weeks ago limited the tax cut to people making less than $ 150,000 in 2020. That threshold is the same regardless of the status of the declaration, such as single or married.
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To date, the IRS indicated that taxpayers should include unemployment benefits as part of their 2020 income to determine whether they qualify for the tax break.
The federal agency said in Tuesday’s guidelines that workers can exclude unemployment benefits from their adjusted adjusted gross income calculation, the official barometer of 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, of the pool of eligible taxpayers.
“This is a very generous interpretation [of the legislation], ”he added.
The IRS did not immediately return a request for comment.
Take the example of a married couple filing a joint declaration. They had a working income of $ 140,000 last year. They also each had $ 10,200 in unemployment benefit income.
Under previous IRS guidelines, this couple would have been ineligible for the tax break, due to a combined income of $ 160,400 when unemployed help was included.
The new IRS calculation makes them eligible. Their income would be $ 140,000 to determine their qualification. Any spouse could exclude $ 10,200 in unemployment benefits from federal tax.
The new directive does not change the amount of tax-free unemployment benefits.