UNEMPLOYMENT
COMPENSATION

For tax year 2020, the first $10,200 of unemployment compensation received by a taxpayer was excludable from income (i.e., not taxable)

• This tax break was available for 2020 only
• For the 2021 tax year, all unemployment compensation received is taxable

If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation. If you file Form 1040-NR, you can’t exclude any unemployment compensation for your spouse.

The exclusion should be reported separately from your unemployment compensation. See the updated instructions and the Unemployment Compensation Exclusion Worksheet to figure your exclusion and the amount to enter on Schedule 1, line 8.  

When figuring the following deductions or exclusions from income, if you are asked to enter an amount from Schedule 1, line 7 enter the total amount of unemployment compensation reported on line 7 (unreduced by any exclusion amount) and if you are asked to enter an amount from Schedule 1, line 8, enter the amount from line 3 of the Unemployment Compensation Exclusion Worksheet. See the specific form or instructions for more information. If you file Form 1040-NR, you aren’t eligible for all of these deductions. See the Instructions for Form 1040-NR for details.

• Taxable social security benefits (Instructions for Form 1040 or 1040-SR, Social Security Benefits Worksheet)
• IRA deduction (Instructions for Form 1040 or 1040-SR, IRA Deduction Worksheet)
• Student loan interest deduction (Instructions for Form 1040 or 1040-SR, Student Loan Interest Deduction Worksheet)
• Nontaxable amount of Olympic or Paralympic medals and USOC prize money (Instructions for Form 1040 or 1040-SR, Schedule 1, line 8)
• The exclusion of interest from Series EE and I U.S. Savings Bonds issued after 1989 (Form 8815)
• The exclusion of employer-provided adoption benefits (Form 8839)
• Tuition and fees deduction (Form 8917)
• The deduction of up to $25,000 for active participation in a passive rental real estate activity (Form 8582)

If you have already filed your 2020 Form 1040 or 1040-SR, you should not file an amended return. The IRS will automatically refund money to people who already filed their tax return reporting unemployment compensation. For more details, visit: IRS.gov.

Source: https://www.irs.gov/forms-pubs/new-exclusion-of-up-to-10200-of-unemployment-compensation