Samuel Corum / Bloomberg via Getty Images
The IRS issued guidance on Tuesday about a further reduction in the unemployment tax that makes more people eligible for the benefit.
The American Rescue Plan exempts federal taxes on up to $ 10,200 from unemployment benefits collected last year, per person.
But Covid’s $ 1.9 trillion relief measure, which President Joe Biden signed almost two weeks ago, limited the tax cut for people who earned less than $ 150,000 in 2020. That limit is the same, regardless of the status of the process, as single or married.
More from Personal Finance:
See how Democrats want to tax the super rich
Stimulus checks: Social Security beneficiaries wait for money
The CDC is likely to extend the national ban on eviction
To date, the IRS has signaled that taxpayers have to count unemployment benefits as part of their 2020 income when determining whether they qualify for tax breaks.
The federal agency said in Tuesday’s guidance that workers can exclude unemployment benefits from their calculation of modified adjusted gross income, the official eligibility barometer.
The change in the rule means that more people will fall below the $ 150,000 income limit.
“It definitely expands it,” said Jeffrey Levine, a certified financial planner, accountant and director of planning at Buckingham Wealth Partners in Long Island, New York, of the group of qualified contributors.
“This is a very generous interpretation [of the legislation], “he added.
The IRS did not immediately return a request for comment.
See the example of a couple filing a joint income tax return. They had a job income of $ 140,000 last year. Each of them had $ 10,200 of unemployment insurance income.
According to previous IRS guidance, this couple would not have qualified for tax breaks, due to the combined income of $ 160,400 when including unemployment benefits.
The new IRS calculation makes them eligible. Your income would be $ 140,000 for the purpose of determining your qualification. Each spouse could exclude $ 10,200 from federal tax unemployment benefits.
The new guideline does not change the amount of tax-free unemployment benefits.