Does the $10,200 unemployment tax break lower AGI?We are currently above the $138,000 limit for the lifetime learning credit. After the break, we would be below.

Forum|Forum|5 years ago
April 18, 2021
5 replies
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The LLC income limit is $138,00 (married filing jointly). I am married filing jointly and my wife and I both have tuition expenses. My wife had unemployment income during the pandemic. Though turbo tax says our income is less than $138,000 on the review page, the education credit page says our income exceeds $138,000. I suspect this is because of the $10,200 unemployment tax break. I'm wondering if turbo tax supports this use case. I do not want to lose out on the LLC.

TurboTax Deluxe Online

ColeenD3

No. It is not TurboTax, it is the IRS ruling. Here is how the law reads as below. Section 222 relates to tuition.

“(1) IN GENERAL.—In the case of any taxable year beginning in 2020, if the adjusted gross income of the taxpayer for such taxable year is less than $150,000, the gross income of such taxpayer shall not include so much of the unemployment compensation received by such taxpayer (or, in the case of a joint return, received by each spouse) as does not exceed $10,200.

“(2) APPLICATION.—For purposes of paragraph (1), the adjusted gross income of the taxpayer shall be determined—

“(A) after application of sections 86, 135, 137, 219, 221, 222, and 469, and

“(B) without regard to this section

kylevvAuthor

This seems to describe how AGI is calculated for the unemployment credit eligibility. How is the lifetime learning credit income eligibility calculated? If $10,200 is removed from my income, I am eligible for the lifetime learning credit.

Thank you @ColeenD3 !

ColeenD3

No. It seems reasonable that it is the case, but the IRS is giving an exclusion for the purpose of not paying tax on the unemployment, not so that the MAGI makes other things such as education credits, taxability of social security, passive activity losses, adoption assistance, just to mention a few, provide more tax benefits.

hbl3973

Employee

kylevv,

While the rather terse prior replies seemed reasonable, I see that, according to

March 23rd IRS - unemployment not counted towards ... (intuit.com)

the unemployment compensation does (a) reduce your Adjusted Gross Income (AGI) and (b) does not increase your Modified Adjusted Gross Income (MAGI). IRS Publication 970 (https://www.irs.gov/pub/irs-pdf/p970.pdf) provides the details on how to calculate MAGI from your AGI for the Lifetime Learning Credit and neither it, nor the online updates page for that publication, mention anything about unemployment compensation.

So, as that cited posting indicated, you may want to wait for a bit and, if prior to May 17, no fix is in place, go ahead and file an extension form with payment for the figure TurboTax shows due at that point so that when you later file by October 15, you will get a refund of the overpayment.

kylevvAuthor

@hbl3973 Thank you for the reply!

I spent about 2 hours on the phone with a TT CPA and am confident all my numbers are correct. I am concerned because I have not seen a support thread here that recognizes this issue. Should I feel confident in waiting for an update if this is not a known issue?

hbl3973

Employee

I'll see what I can do to raise this issue with the TurboTax folks.

rjs

Employee

@kylevv

The $10,200 unemployment exclusion does reduce your AGI. The reduced AGI is used to calculate the income limit for the Lifetime Learning Credit. I tested this and TurboTax seems to be doing the calculation correctly for the Lifetime Learning Credit. So you need to look more carefully at what is happening on your tax return.

Look at the actual tax forms, not the summary or review screens in TurboTax. TurboTax Online is somewhat limited in this respect, but you can preview your Form 1040 and Schedule 1. See the following FAQ for instructions.

How do I preview my TurboTax Online return before filing?

First make sure that you are actually getting the unemployment exclusion. It should appear as a negative number on Schedule 1 line 8. Then look at Form 1040 line 11. That's your AGI after subtracting the unemployment exclusion. Is it less than $138,000?

kylevvAuthor

@rjs Thank you!

I previewed the form, line 11 on my Form 1040 IS less than $138,000

Yet, I am not eligible for the lifetime learning credit with this notice 'income exceeds $138,000'

rjs

Employee

This bug appears to be fixed in today's TurboTax update (June 10, 2021). If you are using TurboTax Online it has been updated automatically. If you are using the CD/Download TurboTax software be sure to install the latest update.