CyberTax TY2020-07: American Rescue Plan Act Updates
To: All AARP Foundation Tax-Aide Volunteers (with a valid email address in the Volunteer Portal)
From: Lynnette Lee-Villanueva, VP and National Director, AARP Foundation Tax-Aide
Subject: CyberTax TY2020-07: American Rescue Plan Act Updates
Please see the following American Rescue Plan updates. Also note that there will be another CyberTax, on a separate topic, issued this week as well.
American Rescue Plan – Background
The American Rescue Plan enacted on March 11, 2021, excludes from taxable income up to $10,200 of unemployment compensation paid in 2020 to the taxpayer plus the same amount if paid to the spouse if the modified adjusted gross income (AGI) on the return before this exclusion is less than $150,000. Amounts over $10,200 for each individual are still taxable. If the modified AGI is $150,000 or more, no unemployment compensation can be excluded.
The initial IRS instructions for this exclusion provided to software vendors (including TaxSlayer) did not properly compute the AGI used in certain calculations (including the taxable portion of Social Security benefits). The IRS has issued updated requirements to all software vendors to correct the AGI computations and TaxSlayer updated the software on March 24.
Action Items – Unemployment Compensation:
- Re-open and then e-file any unsubmitted returns with unemployment compensation except returns with Advance Premium Tax Credit repayments – see below.
- DO NOT AMEND any already filed returns that include unemployment compensation. The IRS will refigure the taxes on these returns and adjust the taxpayer’s account accordingly.
- DO NOT OPEN already submitted returns before site administrators can navigate to Reports > Management Reports and run and export the Pro Web Returns – Detailed Return Report . This report provides the history of the federal and state refunds/balance due as-filed and whether the return included a Form 1099-G for all returns. Then already filed returns with a Form 1099-G can be re-opened to recalculate and taxpayers can be informed of the changes in their return with the updated calculations.
- If your state taxes unemployment compensation or uses the federal AGI as the basis for the state tax, HOLD the state returns until you receive confirmation that TaxSlayer state return software reflects your state rules, i.e., is federally excluded unemployment compensation also excluded from state taxation and/or the AGI. See TaxSlayer blog for link to state information.
- Complete the preparation and quality review of all held returns based on taxpayer information provided. Add note(s) to explain the reason(s) for the hold.
- Develop a site plan to ensure all returns on hold are updated, reviewed with the impacted taxpayers and then e-filed once the federal and state software is fully updated even if this happens after sites close for the tax season.
- The Act also excluded repayment of any excess Advance Premium Tax Credit received by the taxpayer. TaxSlayer must wait for the IRS to update its e-file system to include this fix. HOLD all returns with APTC repayment.
- While the tax season has been extended through May 17 and any federal income tax payments for the 2020 tax year normally due on April 15, 2021, are now due May 17, 2021, the first 2021 estimated tax payment is still due on April 15, 2021.
- Closely monitor the TaxSlayer Blog for the latest information on changes to the software.
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