CUSTOMER SERVICE MEMO CSTP2101

for 2021 Edition of HowardSoft's Tax Preparer®

(Revised 5/10/2021)

How to claim Unemployment Compensation Exclusion

Background. The American Rescue Plan of 2021, enacted March 11, 2021, includes a retroactive provision that allows you to exclude from taxable income as much as $10,200 of any unemployment compensation you received in 2020. However, your "modified" AGI must be less than $150,000 to qualify and the IRS requires you to claim the exclusion in a specific manner. If married filing jointly and both spouses received unemployment compensation in 2020, the amount of exclusion is determined separately for each spouse, so a couple could have an exclusion as high as $20,400.

New Procedure. The manual procedure for claiming the Unemployment Compensation Exclusion as described in the original version of this memo is no longer appropriate, as of Tax Preparer release 2021.01k. The exclusion is now automatically determined by our Unemployment Compensation Exclusion Worksheet on the last screen of Schedules 1-3 and reflected in the line immediately preceding Schedule 1, line 8, on screen 2. The new calculations are automatically activated the first time you access Schedules 1-3 in the PREPARE 1040 Tax Returns mode (item 2 on the Main Menu). Furthermore, the exclusion claimed is now reflected in revised calculations for a number of deductions and credits that are not allowed to benefit from the Unemployment Compensation Exclusion, as summarized in the What's New section of the latest version of IRS 1040 Instructions for 2020, which is Revision April 13, 2021 (indicated at the bottom of page 1 of the IRS instructions).

CAUTION. If you already claimed the Unemployment Compensation Exclusion in a supporting statement for "You:Other (unearned)" or "Spo:Other (unearned)" on screen 2 of Shedule 1, as we instructed in the original version of this memo, you MUST remove the entry in the support so that it is no longer reflected in the total for "You:Other (unearned)" or "Spo:Other (unearned)." Otherwise, your exclusion will be claimed more than once because it is now automatically reflected in the line "UCE (unemp.comp.exclusion)" that precedes line 8 on screen 2 of Schedule 1. In addition, the manual procedure does not allow the software to properly reflect the exclusion in the calculation of number of deductions and credits. (Note that the manual procedure described in the original version of this memo was based on the IRS Unemployment Compensation Worksheet provided by the IRS in a memo released on March 16, 2021. However, that version of the worksheet overstated the modified AGI because it included the unemployment compensation reported on line 7 of Schedule 1, unlike the final version of that worksheet included in the April 13, 2021 revision of IRS Form 1040 Instructions for 2020. Therefore, you may be qualified for the exclusion using the automated worksheet in our release 2021.01k or later when you were not qualfied by your former manual calculation.)