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More Taxpayers to Get Unemployment Tax Relief, IRS Says

Posted on Mar. 24, 2021

Taxpayers will no longer have to count unemployment income toward the $150,000 modified adjusted gross income cap for claiming a new income tax exclusion.

The change on the IRS website March 23 means more taxpayers will be eligible for a $10,200-per-person unemployment income tax exclusion offered in the American Rescue Plan Act of 2021 (P.L. 117-2).

Taxpayers with modified AGI above $150,000 a year cannot exclude any of their unemployment compensation from their 2020 income tax returns, the IRS noted.

Married couples don’t have to pay federal income tax on unemployment income up to $10,200 each, the IRS said.

The IRS previously insisted that taxpayers report unemployment benefits as part of their annual income to qualify for the exclusion.

The tax agency also noted that Form 1040 and 1040-SR taxpayers, who’ve already filed and paid tax on amounts previously ineligible for refund, will have their returns recalculated by the IRS. Refund checks will be sent directly to them, the IRS said.

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