This office does not handle:

  • Unemployment Insurance Benefits (UI)
  • State Disability Issues (SDI)
  • Worker Compensation Issues
  • EDD Overpayments
ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – UNEMPLOYMENT INSURANCE BENEFITS – EXCLUDIBLE FROM BOTH FTB AND IRS
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ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – UNEMPLOYMENT INSURANCE BENEFITS – EXCLUDIBLE FROM BOTH FTB AND IRS

By Robert S. Schriebman

2021

Unemployment Insurance (UI) compensation has not been subject to California income taxes for quite some time. On the other hand, those benefits have always been subjected to IRS income taxation. Not anymore – GOOD NEWS – those benefits may not be taxable at both the FTB and IRS levels any longer. On March 18, 2021, the IRS announced that taxpayers with modified adjusted gross income (AGI) of less than $150,000 do not have to pay federal income taxes on unemployment compensation up to $10,200 per recipient. If both spouses are receiving UI benefits, and their AGI is under $150,000, $20,400 of UI benefits are excludible – tax free! This includes benefits received in 2020. These exclusions are part of the American Rescue Plan enacted on March 11, 2021.

If you fit into these parameters, but have already filed your 2020 individual income tax return reporting benefits and paying taxes on them, you should file an amended return as you will be entitled to a refund.

Amounts of UI compensation received over and above the $10,200 ($20,400 for both spouses), you will have to pay the IRS income taxes on amounts exceeding these limits. For example, supposed you were paid $20,000 of UI benefits and your spouse was paid $5,000 in 2020, you will be able to exclude $15,200 but have to pay taxes on $5,000. This example assumes that your AGI was less than $150,000.

What do you do if your modified AGI is $150,000 or more and you have received UI benefits? You lose – you cannot exclude any unemployment compensation and the rules are the same as they were before the enactment of American Rescue Plan.

Conclusion: Congress has traditionally been stingy when it comes to granting any kind of tax break for income received. With this new Legislation the leopard has not changed its spots. Let’s hope that someday those in Congress will get a true understanding of the cost of living and the hardships of being unemployed.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 549