2021-38: IRS confirms treatment of MFJ UI exclusion - Spidell

2021-38: IRS confirms treatment of MFJ UI exclusion


In an FAQ posted on its website, the IRS has confirmed Spidell’s position that taxpayers filing MFJ returns in community property states should split the unemployment insurance (UI) benefits received by one spouse between both spouses when completing the Form 1040 UI worksheet. Under the community property income principals, each spouse may claim up to the full $10,200 exclusion, even where one spouse earned all of the UI income. (See www.irs.gov/forms-pubs/unemployment-exclusion-update-for-married-taxpayers-living-in-a-community-property-state)

For example, if one spouse receives $30,000 in UI benefits, each spouse would report that they received $15,000 in benefits, and each spouse may claim the full $10,200 exclusion for a total exclusion of $20,400 on their MFJ return.

Practitioners who filed MFJ returns and limited the exclusion to $10,200 should review these returns to see whether an amended return should be filed.

Here is the text of the FAQ:

I’m married and live in a community property state. Are we eligible for the exclusion?

If you file a Married Filing Joint return, when completing the worksheet, 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. 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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