For federal tax purposes, if your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan Act (P.L. 117-2) enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you do not have to pay tax on unemployment compensation up to $10,200.
If you are married, each spouse receiving unemployment compensation does not have to pay tax on unemployment compensation up to $10,200. Taxpayers filing a joint return are eligible for the exclusion only if their combined AGI is less than $150,000. Amounts over $10,200 for each individual are still taxable.
If your modified AGI is $150,000 or more, you cannot exclude any unemployment compensation from gross income. As the exclusion took effect after some qualifying taxpayers already filed their 2020 returns, the IRS has announced it will automatically adjust affected returns to account for the exclusion. The IRS has advised that there is no need for taxpayers to file an amended federal return, unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included in the return.
As the federal AGI is the starting point for calculating District tax liability, the federal exclusion for unemployment compensation paid in 2020 provided under the American Rescue Plan Act will also be reflected on District individual tax returns.
What steps do District taxpayers need to take to claim the federal unemployment compensation exclusion for District income tax purposes?
- If you have not yet filed your District return. After filing your federal return, file your District return using the federal AGI you reported on your federal return. Any unemployment compensation exclusion that you reported on your federal return will be reflected in your federal AGI and taken into account in calculating your District income tax. The District of Columbia has extended the deadline to file and pay all income tax returns until May 17, 2021. See OTR Tax Notice 2021-02: COVID-19 Emergency Income and Franchise Tax Extension.
- If you have filed your District return. If you have already filed your District return, please do not file an amended District return at this time. The Office of Tax and Revenue is waiting for more guidance from the IRS on how these re-calculations will be reported to taxpayers and state taxing agencies. The Office of Tax and Revenue will issue additional guidance as soon as more information becomes available.
You should consult with a tax professional or visit MyTax.DC.gov for information on available credits and if the exclusion of unemployment compensation qualifies you for any credit under District tax law. If so, please do not file an amended District return at this time. The Office of Tax and Revenue will issue additional guidance as soon as more information becomes available.
For additional information, please contact the Office of Tax and Revenue ’s Customer Service Center at 202-727-4829.