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The IRS on Tuesday issued guidance on a new unemployment tax break that will allow more people to get the benefit.
The American Rescue Plan waives federal taxes on up to $ 10,200 in unemployment benefits collected per person over the past year.
However, the $ 1.9 trillion Covid bailout signed by President Joe Biden nearly two weeks ago limited the tax cut to those who earned less than $ 150,000 in 2020.
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To date, the IRS has signaled that taxpayers must count unemployment benefits as part of their 2020 income to determine if they are eligible for the tax break.
The federal agency said in Tuesday’s guidelines that workers can exclude unemployment benefits from their calculation of modified adjusted gross earnings, the official barometer of eligibility.
The rule change means more people are falling below the $ 150,000 income limit.
“It definitely expands it,” said Jeffrey Levine, certified financial planner, accountant and chief planning officer at Buckingham Wealth Partners in Long Island, New York, of the Eligible Taxpayer Pool.
“This is a very generous interpretation [of the legislation],” he added.
The IRS did not immediately return a request for comment.
Take the example of a married couple filing a joint tax return. You had a wage of $ 140,000 last year. They also had an income of $ 10,200 each from unemployment benefits.
Under previous IRS guidance, this couple would not have qualified for the tax break based on a combined income of $ 160,400, including unemployment benefits.
The new IRS calculation makes them eligible. Their income would be $ 140,000 to determine their qualifications. Either spouse could exclude US $ 10,200 from federal tax unemployment benefits.
The new guidelines do not change the level of tax-free unemployment benefits.