UI exclusion for married taxpayers, and PPP loan and IRA extensions - Spidell

UI exclusion for married taxpayers, and PPP loan and IRA extensions

If a married couple’s combined AGI (calculated without any UI compensation) is below $150,000, then MFJ taxpayers may exclude up to $20,400 of unemployment income even if one of the spouses had less than $10,200 in UI and the other spouse had more than $10,200. That is because California is a community property state and the Tax Court has recognized that UI is treated as community property. (Calhoun v. Commissioner (1992) 64 TC 222) However, your tax software may not properly split this income, and could improperly limit the exclusion if one spouse received less than $10,200. Tax professionals need to watch out for this and apply a manual override in this situation.

Married taxpayers with AGI above the $150,000 may file MFS to bring their AGI below the limit, which allows them to each claim up to the $10,200 maximum exclusion.

To that end, we recommend:

  • Consider filing MFS for couples with AGI over $150,000, and split the unemployment income to maximize the exclusion;
  • If you are filing an extension for these couples, we suggest filing extensions for each spouse separately, which makes clear that they can either file joint or separate when filing the extended return;
  • If you already filed a 2020 return for one of these couples, and wish to file a superseding return changing the MFJ filing status to MFS, you must file it on or before May 17, 2021; and
  • Remember, married taxpayers who file separate may always amend to file joint as long as the statute of limitations is open.

PPP loans

The Senate sent H.R. 1799, the PPP Extension Act of 2021 (PEA), to the President on March 25. The President is expected to sign the act, which extends the deadline to file for both first and second draw PPP loans from March 31 to May 31, 2021.

IRA/HSA extensions

At an IRS Liaison Stakeholder meeting held on March 24, the IRS confirmed that the IRA/HSA contribution deadline has been extended to May 17, 2021, the extended date for filing individual tax returns.

Attend Spidell’s 2021 Post-Tax Season Update and Review webinar to review, refresh, and arm yourself to tackle extensions. Click here and register now.