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17150: American Rescue Plan Act of 2021


IRS Info/Alerts

The following information applies to Drake20 in regards to the American Rescue Plan Act of 2021 and the changes to unemployment, advanced premium tax credit repayment, and other provisions. 

 

The American Rescue Plan Act of 2021 makes a portion of unemployment compensation non-taxable for certain filers and eliminates repayment of excess funds received through the Advance Premium Tax Credit.

New Returns with Unemployment Compensation

Enter the 1099-G as it was received on the 99G screen with the full amount on line 1. The full amount of unemployment compensation will flow to Schedule 1, line 7. Starting March 16, 2021, the software will produce Wks Exclusion to calculate the applicable exclusion amount, and that amount will carry to Form 1040, Schedule 1, Line 8 with the literal "UCE" in accordance with IRS instructions. 

For more information, see the IRS website

If you check the box on the bottom of the 99G screen to Show what federal and state returns would be without excluding any unemployment under the new ARPA rules EF message 2610 prevents e-file. 

Adjusted Gross Income Calculations on Certain Forms and Credits

Per the American Rescue Plan Act of 2021, Section 9042, page 119, certain credits and calculations are required to be figured with the full unemployment received, not the amount after adjustment. Also see the IRS website for updated instructions. 

  • Taxable social security benefits (Wks SSB-1: Social Security Benefits Worksheet)
  • IRA deduction (IRA Deduction Worksheet)
  • Student loan interest deduction (Wks SLID: Student Loan Interest Deduction Worksheet)
  • Nontaxable amount of Olympic or Paralympic medals and USOC prize money (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)

See Related Links below regarding rejects F8962-002-03 or F8917-012 on a return where unemployment is being excluded.

Worksheet Update 3/25/2021

Wks Exclusion that computes the nontaxable part of unemployment income was updated on 3/25/21 to reflect a recent IRS decision. The new worksheet omits ALL unemployment from the calculation of the $150,000 limitation. Already filed returns for taxpayers who did not qualify for the exclusion due to the $150,000 limitation should be reviewed.

Returns Previously Filed with Unemployment Compensation -Updated 3/31/21

The Internal Revenue Service has announced that it will take steps to automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan.

The IRS states:

“There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.”

 You’ll want to review returns filed with unemployment compensation prior to the exclusion to determine which returns need to be amended in order to receive any additional federal or state tax break(s).

 TIP: To generate a report showing returns that contain unemployment compensation, follow the instructions in this Drake Knowledge Base article 16991

If you file state returns in states that conform to the federal unemployment exclusion, you may still need to file amended state returns for your affected clients.

State Conformity

We are actively working with state tax agencies to determine how states plan to address the federal tax law changes brought about by the American Rescue Plan Act of 2021. For state conformity updates, see Related Links below. 

Advance Premium Tax Credit

As of April 3, 2021, EF message 2613 has been removed and returns with excess Advanced Premium Tax Credit (APTC) can now be filed.

The American Rescue Plan Act of 2021 (ARPA), passed in March 2021, contains a provision to no longer require repayment of any excess APTC on 2020 tax returns. Recent IRS guidance relative to this provision instructs taxpayers who have an amount on line 29 of Form 8962 to not include Form 8962 with their return.

Drake20 will continue to produce Form 8962 for review purposes only. The form will not be included with the e-filed return, and should not be mailed with a paper-filed return. Although filing Form 8962 is required of taxpayers receiving APTC, the IRS intends to make internal changes that will prevent these taxpayers from receiving correspondence regarding Form 8962 not being filed.

The IRS has not yet released guidance on returns that were previously filed with an advanced premium tax credit repayment included on line 29 of Form 8962. 

Third Stimulus Payment

The IRS will begin the process of depositing payments into accounts immediately, with the first wave of direct deposits available as early as March 12th

It is our understanding the IRS will use direct deposit (DD) information from 2020 and 2019 tax returns, with 2020 taking precedent, if available. The IRS Get My Payment (GMP) tool can be used to check the status of the payment. 

Payments received in this third round of stimulus do not impact 2020 tax returns.

Child Tax Credit

The Child Tax Credit provisions do not affect tax year 2020 returns. See Section 9611 - Child Tax Credit Improvements for 2021 (starting on page 141) of the ARP for details on the changes that take place beginning after December 31, 2020 and before January 1, 2022. 

Reports

Unemployment 

To generate a report showing returns that contain unemployment compensation, do the following:

  1. Go to Reports > Report Manager > Client Reports > Client Contact > Contact list (individual).
  2. Click Edit Report.
  3. Change the Report Title, for example, "1040 with Unemployment Compensation."
  4. Locate and add the column Unemployment Compensation to the selected report columns list. 
    • Add other columns, if needed. 
  5. Click Next.
  6. Click Edit Filters.
  7. Click Add Condition.
  8. Click Copy on the filter changes pop-up window.
  9. Enter a Filter Name (for example, unemployment).
  10. Click OK.
  11. On the Filter Condition Editor window:
    • Choose Keyword name as Unemployment Compensation.
    • Choose Comparison: is at least.
    • Enter Value: 1 (or whatever lower limit is needed). 
    • Click Ok
  1. Then click Save.
  2. Click Save again.
  3. Click View Report and Continue through the search conditions. 
  4. The report can be printed or exported to Excel. 

APTC Repayment 

To generate a report showing returns that contain a Premium Tax Credit Repayment, do the following:

  1. Go to Reports > Report Manager > Client Reports > Client Contact > Contact list (individual).
  2. Click Edit Report.
  3. Change the Report Title, for example, "1040 with PTC Repayment."
  4. Locate and add the column ACA PTC Repayment to the selected report columns list. 
    • Add other columns, if needed. 
  5. Click Next.
  6. Click Edit Filters.
  7. Click Add Condition.
  8. Click Copy on the filter changes pop-up window.
  9. Enter a Filter Name (for example, PTC).
  10. Click OK.
  11. On the Filter Condition Editor window:
    • Choose Keyword name as ACA PTC Repayment.
    • Choose Comparison: is at least.
    • Enter Value: 1 (or whatever amount is needed). 
    • Click Ok.
  12. Then click Save.
  13. Click Save again.
  14. Click View Report and Continue through the search conditions. 
  15. The report can be printed or exported to Excel. 

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