How the $10,200 Unemployment Compensation Tax Exclusion Affects Your Earned Income Credit for 2020

Your earned income tax credit for 2020 may INCREASE as a result of a RECENT change in the law that excludes up to $10,200 of unemployment compensation received in 2020 from taxable income. This video shows you how to determine the impact of this change on your credit amount.

IMPORTANT UPDATE

This video mentions that information will be forthcoming from the IRS regarding whether taxpayers will have to take any action to claim any increase in their earned income tax credit. The IRS has now released that information. Here's a link to my video that covers the new information:    • Automatic Tax Refunds from the IRS fo...  

LINKS TO OTHER VIDEOS ON THE EARNED INCOME TAX CREDIT FOR 2020:

Quick Summary video – A discussion that is about as quick as it can possibly be while still giving you a good overall picture of all the essential elements of the earned income credit, including how to determine how many qualifying children you have:    • Quick Summary of the Earned Income Ta...  

Qualifying Children video – A thorough discussion of the requirements for a child to be treated as your qualifying child for the earned income tax credit:    • Earned Income Tax Credit: Who Are You...  

LINKS TO RESOURCES MENTIONED IN THIS VIDEO:

Instructions for Form 1040, U.S. Individual Income Tax return, where you will find Worksheet A on page 45, Worksheet B on page 46, and the IRS table to look up the amount of your earned income tax credit on page 48: https://www.irs.gov/pub/irs-pdf/i1040...

IRS webpage for the latest information on whether the IRS will process refunds automatically to reflect the $10,200 unemployment tax exclusion for 2020, or whether you’ll have to tax action to get a refund: https://www.irs.gov/forms-pubs/new-ex...

Another IRS webpage to monitor for the same information as noted immediately above (you will need to scroll down on the page to “Recent Developments”): https://www.irs.gov/forms-pubs/about-...

DESCRIPTION OF THIS VIDEO:

The earned income tax credit (also known as the earned income credit, EITC, or EIC) provides a credit of up to $6,660 in 2020 for taxpayers who are eligible for it. On March 11, 2021, a new law (the American Rescue Plan Act of 2021) was enacted that excludes up to $10,200 of unemployment compensation received in 2020 from taxable income. Thus, if you received unemployment compensation in 2020, your income taxes for 2020 will be reduced. In addition, it is possible that the amount of your earned income tax credit for 2020 will increase as a result of this new law. This video explains why your earned income tax credit may increase, and shows you how to determine the amount of the change in your earned income tax credit as a result of the new law.

ABOUT ME

I retired in July 2018 after serving as a tax partner for 26 years in two major accounting firms in Washington, DC (first, at Ernst & Young LLP for 12 years, and later, at Grant Thornton LLP for 14 years). During my career, I was quoted in most of the nation’s major newspapers, including The Wall Street Journal, The New York Times, and USA Today. I also appeared on CNBC. I wrote over 50 articles that were published in various professional journals, and I made over 70 presentations at professional conferences, where I was consistently rated as one of the top presenters by conference attendees. Now that I am retired, I am spending part of my time making videos to help people understand tax issues.

DISCLAIMER

The video is intended to educate you about the earned income credit. It is not intended as tax advice directed specifically to you. You should not treat this video as personal tax advice given by me to you. You cannot use this video as a basis to avoid penalties under the Internal Revenue Code if it is determined that you have taken a position on your tax return that is contrary to the law.