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The IRS on Tuesday released guidance on a new reduction in unemployment taxes that will allow more people to benefit from the benefit.
The American Rescue Plan waives federal taxes of up to $ 10,200 on unemployment benefits collected last year, per person.
But Covid’s $ 1.9 trillion relief measure, which President Joe Biden signed nearly two weeks ago, limited tax cuts to people who earned less than $ 150,000 in 2020. threshold is the same regardless of the status of filing as single or married.
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To date, the IRS has pointed out that taxpayers should count unemployment benefits as part of their 2020 income when determining whether they meet the requirements for the tax credit.
The federal agency said in Tuesday’s guidelines that workers can exclude unemployment benefits from the calculation of modified adjusted gross income, the official barometer for eligibility.
The rule change means more people will fall below the $ 150,000 income limit.
“It definitely expands,” said Jeffrey Levine, a certified financial planner, accountant and chief planning officer at Buckingham Wealth Partners in Long Island, New York, on the set of eligible taxpayers.
“This is a very generous interpretation [of the legislation],” added.
The IRS did not immediately return any request for comment.
Take the example of a married couple filing a joint tax return. Last year they had a labor income of $ 140,000. They also had $ 10,200 in unemployment benefits.
Under the IRS’s prior guidance, this couple would not have qualified for the tax cut, due to a combined income of $ 160,400 when taking into account unemployment benefits.
The new IRS calculation makes them eligible. His income would be $ 140,000 to determine his qualification. Each spouse could exclude $ 10,200 from federal unemployment benefit.
The new guideline does not change the amount of tax-free unemployment benefits.