AARP Foundation Tax-Aide CyberTax
April 1, 2021
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 TY2020-09: Unemployment Compensation Exclusion and APTC Updates
Unemployment Compensation (UC) Exclusion Updates
TaxSlayer has updated the software to properly handle the up-to $10,200 exclusion of unemployment compensation from the federal taxable income and has modified the software to either include or exclude the UC exclusion for state returns where the states have provided instructions. However, there are several states that have not updated their business rules specifically for the UC exclusion. Since the tax law for those states has not changed, federal and state returns with unemployment compensation can be e-filed as-is – no state workarounds required unless there is a known calculation error such as the exclusion being added twice. These returns are otherwise correct based on current state tax rules so returns can be e-filed now. If a state later changes its rules, an amendment may be required. The TaxSlayer state information report is here.
The IRS will recalculate returns with unemployment compensation to ensure the exclusion is properly included and notify taxpayers of any changes. DO NOT RESUBMIT already filed returns. DO NOT AMEND already filed returns unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. The IRS plans to start this recalculation/notification process in May and expects it to continue into the summer.
Advance Premium Tax Credit Repayment
The American Rescue Plan Act includes a provision to exclude repayment of any excess Advance Premium Tax Credit (APTC) received by a taxpayer. However, the IRS has not updated its e-file system to reflect this tax law change and has not provided any timing on when this update will be available. TaxSlayer must wait for directions from the IRS before it can update its software. Held returns that include Advance Premium Tax Credit repayment can be submitted before the site closes for the season as-is with the repayment included* and the taxpayer notified as follows:
- If there is a refund – inform the taxpayer that there will be an additional refund once the IRS updates its system. Unknown at this time is if an amended return will be required to claim the additional refund.
- If there is a balance due – subtract the APTC repayment (Schedule 2, Line 2) from the balance due (Form 1040, Line 37) to determine the net balance due or refund.
- If the net amount is now a refund, inform the taxpayer that 1) s/he can either pay the original balance due or not pay anything at this time and 2) there will be a refund once the IRS updates its system. Unknown at this time is if an amended return will be required to claim the refund.
- If the net amount is still a balance due, inform the taxpayer that 1) s/he can either pay the original balance due or cross out the original amount on the voucher and write in the new net amount and 2) mail the voucher with a check to the IRS by May 17th.
Tax-Aide has provided two associated resources – an APTC Taxpayer Letter template to complete and sample APTC letters for guidance – which can be found in the Training and Tax Law Library of the Volunteer Portal. Fill-in the pertinent sections in the APTC Taxpayer Letter, cross out the sections that do not apply and give a copy to the taxpayers whose returns include an APTC repayment.
* Do not include the excess APTC as a medical expense on Schedule A if the taxpayer itemizes deductions.
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