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17284: Unemployment Compensation Exclusion - Community Property State


1040 Individual

How do I report unemployment compensation and the unemployment compensation exclusion when the taxpayer lives in a community property state? 

 

Ordinarily, unemployment is entered on the 99G screen and the UCE is calculated automatically. Given the new guidance from IRS, married taxpayers in community property states will need to make a manual adjustment to allow the amount reported appropriately. In Drake20, ​you will need to make the appropriate data entry changes to show that each spouse received half of the total, either by:

  • creating two 99G screens, one for each spouse, with half of the unemployment reported on each, or
  • entering half of the unemployment compensation received under the taxpayer column and the other half under the spouse column using screen 3, Schedule 1, part I, line 7. 

Do not select J in the TSJ box on the 99G screen for this situation. It will not split the amount between taxpayer and spouse and will result in EF message 2754. That entry is only applicable if the 99G screen is for state/local tax refunds/credits.

The IRS guidance is as follows: 

"Because you live in a community property state, if you file a Married Filing Separately return, you report half of your unemployment compensation and half of your spouse's unemployment compensation on your tax return and your spouse reports the other half of your unemployment compensation and half of his or her unemployment compensation on his or her tax return. You should exclude up to $10,200  on your tax return if your modified AGI is less than $150,000. Your spouse should exclude up to another $10,200 on his or her tax return if your spouse's modified AGI is less than $150,000. Neither of you should exclude more than the amount of unemployment compensation you report on your Schedule 1, Line 7.

If you file a Married Filing Jointly return, when completing the Unemployment Compensation Exclusion Worksheet – Schedule 1, Line 8, you should report half of your unemployment compensation and half of your spouse's unemployment compensation on line 8 of the worksheet and your spouse reports the other half of your unemployment compensation and half of his or her unemployment compensation on line 9 of the worksheet. Do not enter more than $10,200 on either line 8 or line 9 of the worksheet. If your joint modified AGI is less than $150,000, you and your spouse can exclude up to $10,200 each. Do not exclude more than the amount of unemployment compensation you report on your Schedule 1, Line 7."


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