IRS Form 915 and the Unemployment Exclusion Worksheet
Learn how to correctly calculate and report the 2020 unemployment tax exclusion using its specific worksheet, a process separate from the standard Form 915.
The American Rescue Plan Act of 2021 introduced a tax provision for the 2020 tax year, allowing certain taxpayers to exclude a portion of their unemployment compensation from income. This led to the “Unemployment Compensation Exclusion Worksheet,” a tool for calculating this one-time exclusion. This worksheet should be distinguished from IRS Form 915, “Request for Abatement of Interest, Penalties, and/or Assessed Tax,” which serves an entirely different purpose. The 2020 worksheet was a response to the economic impact of the COVID-19 pandemic and is not a recurring tax form.
Eligibility for the Unemployment Compensation Exclusion
To qualify for the unemployment compensation exclusion in 2020, a taxpayer had to meet two conditions. The first was having received unemployment compensation during the 2020 calendar year. The second was that the taxpayer’s Modified Adjusted Gross Income (MAGI) for 2020 had to be less than $150,000. This income threshold was the same for all filing statuses and did not double for joint filers.
The calculation of MAGI for this purpose was defined by the IRS. A taxpayer would start with their Adjusted Gross Income (AGI) from Line 11 of their 2020 Form 1040 and subtract the total unemployment compensation from Line 7 of Schedule 1.
If this MAGI was below the $150,000 limit, the taxpayer could exclude up to $10,200 of their unemployment benefits. For those filing a joint return, each spouse could exclude up to $10,200 of their own benefits, for a potential total of $20,400, if the joint MAGI was under the threshold.
Information Required for the Worksheet
Before beginning the Unemployment Compensation Exclusion Worksheet, gathering the correct financial figures was a necessary step. The primary information needed was the total unemployment compensation received in 2020. This amount is found in Box 1 of Form 1099-G, “Certain Government Payments,” issued by the state unemployment agency. Taxpayers who received benefits from multiple states would need to sum the amounts from all their Forms 1099-G.
To verify MAGI eligibility, you needed your Adjusted Gross Income (AGI) from Line 11 of the Form 1040. From this AGI, you would subtract the total unemployment compensation reported on Schedule 1, Line 7 to see if your MAGI was below the $150,000 threshold.
For joint filers, it was important to have the individual unemployment amounts for each spouse separately. Having these figures available streamlines the process.
Completing the Unemployment Compensation Exclusion Worksheet
The “Unemployment Compensation Exclusion Worksheet” follows a line-by-line calculation process. Found in the instructions for Form 1040, the worksheet guides the taxpayer through determining the amount of their excludable benefits.
The first line requires the user to enter their total unemployment compensation from Schedule 1, Line 7. The next step involves entering the maximum exclusion amount of $10,200. The worksheet then instructs the user to compare their total unemployment compensation to the $10,200 limit and enter the smaller of the two amounts.
If filing a joint return, the worksheet provides separate lines to perform the same calculation for the spouse’s unemployment compensation. Each spouse’s exclusion is calculated independently, up to their own $10,200 limit. The final step is to add the individual exclusion amounts for the taxpayer and spouse together. This sum is the total exclusion that can be reported.
Reporting the Exclusion on Your Tax Return
Once the total excludable amount was calculated, the final step was to report it on the 2020 tax return. The exclusion is not a separate form but an entry made on Schedule 1 of Form 1040. The calculated exclusion amount is entered on Line 8, “Other income,” as a negative number in parentheses.
The IRS required specific notation on the dotted line next to the amount on Line 8 of Schedule 1, where the taxpayer was instructed to write “UCE,” for Unemployment Compensation Exclusion. This entry reduced the taxpayer’s total income and adjusted gross income, leading to a lower tax liability.