March 1, 2021: Arkansas enacted S.B. 236 exempting unemployment compensation benefits and unemployment insurance benefits from individual income tax for calendar years 2020 and 2021. The law includes measures creating an exemption from the tax imposed by the Income Tax Act of 1929 for: 1) unemployment compensation benefits paid from federal unemployment funds for the calendar year 2020 or 2021; and 2) unemployment insurance benefits received from unemployment compensation paid under Title IV of the Social Security Act for the calendar year 2020 or 2021.
The Connecticut Department of Revenue Services updated its personal income FAQs to state that the exemption from income of the first $10,200 of unemployment compensation in the American Rescue Plan Act is not subject to Connecticut personal income tax. The starting point in determining an individual’s Connecticut income tax liability is the individual’s federal adjusted gross income. There are no Connecticut statutory modifications that require this new federal exemption amount to be added back on Connecticut’s return. Therefore, the excluded amount is not subject to Connecticut income tax. (2021 CT Income Tax Filing Season FAQs, updated 03/16/2021.)
The Illinois Department of Revenue advises taxpayers that it is currently reviewing the provision of the federal American Rescue Plan Act of 2021 that makes the first $10,200 per taxpayer of 2020 unemployment benefits nontaxable for individuals with an adjusted gross income of less than $150,000. The department strongly urges affected taxpayers to not file returns related to these changes at this time. Additionally, taxpayers who received unemployment benefits last year and have already filed their 2020 tax return should not file an amended return at this time. The department will issue guidance on how to correctly report unemployment income on 2020 returns once their review is complete. (American Rescue Plan Act of 2021 – Nontaxable Unemployment Benefits, 03/17/2021.)
Minnesota Governor Tim Walz has announced a revised budget for the next biennium, reflecting a projected budget surplus. The Governor’s Revised COVID-19 Recovery Budget includes tax relief for Minnesotans who received unemployment benefits during the pandemic, expands the renter’s property tax refund, increases eligibility for the Working Family Credit, and includes a Earned Sick and Safe Time proposal to ensure that workers can accrue up to 48 hours per year of paid leave. Governor Walz’s budget includes modified conformity for the Shuttered Venues grant and the Paycheck Protection Program, and would exclude the first $350,000 from income for forgiven loan amounts. The revised budget removes the recommendation on increasing the cigarette tax and the correlating moist snuff tax. The revised budget also lowers the initially-proposed increase on the current corporate franchise tax rate from 11.25% to 10.8%. (Minn. Governor’s Office press release, 03/18/2021.)
The Montana Department of Revenue has issued information regarding the American Rescue Plan Act of 2021 (ARPA) and taxpayers with a federal modified adjusted gross income of $150,000 or less who received unemployment compensation in 2020. Under the Act, these taxpayers can exclude up to $10,200 of unemployment compensation from gross income. However, the Department notes that unemployment compensation is never taxable in Montana. As a result, taxpayers who filed Form 2 as of March 12, 2021 should not amend their Montana tax returns to report the new federal exclusion if it was already excluded on Form 2. Taxpayers who file after March 12, 2021 must follow the revised instructions for the lines noted to exclude all unemployment compensation from Montana income tax. Taxpayers who file after this date should note the following: (1) on Schedule 1, Line 8 – other income, taxpayers should enter the amount from Form 1040, Schedule 1, Line 8, including the federal exclusion of unemployment compensation; (2) on the Additions Schedule, Line 14 – other additions, in addition to other Montana additions reported on this line, taxpayers should enter the total amount of the federal exclusion reported on Schedule 1, Line 8 and “UCE” should be entered in the specification box; and (3) on Subtractions Schedule, Line 7 – unemployment compensation, taxpayers should enter the unemployment compensation from Schedule 1, Line 7 but they should not subtract the federal exclusion of unemployment compensation from this line. (How to exempt unemployment compensation on Montana Form 2 under ARPA, Mont. Dept. Rev., 03/17/2021.)
The North Carolina Department of Revenue has issued guidance on the impact of the American Rescue Plan Act of 2021 (ARPA) on the 2020 North Carolina personal income tax return. The ARPA, enacted on March 11, 2021, includes several coronavirus-related (COVID-19) tax relief provisions, including a provision that makes the first $10,200 of 2020 unemployment benefits not subject to federal individual income tax for households with an adjusted gross income (AGI) of less than $150,000 per year. North Carolina currently references the Internal Revenue Code (IRC) as of May 1, 2020. Therefore, unless the North Carolina General Assembly updates North Carolina law to reference the IRC as it was enacted as of March 11, 2021, or later, the tax provisions in the ARPA, including the provision to exclude a portion of unemployment compensation from AGI, do not apply to an individual when calculating North Carolina taxable income for tax year 2020. Taxpayers who file their 2020 North Carolina Individual Income Tax Return (Form D-400) prior to any action of the North Carolina General Assembly and whose AGI excludes unemployment compensation pursuant to the provisions of the ARPA must add back the amount of unemployment compensation excluded from AGI when determining North Carolina taxable income. Taxpayers may choose to wait to file their 2020 Form D-400 until after the North Carolina General Assembly enacts legislation updating the North Carolina’s reference to the IRC. However, a taxpayer who files a 2020 Form D-400 after the original due date of the return must be granted an extension of time to file the North Carolina income tax return. (Impact of the American Rescue Plan Act of 2021 on the 2020 North Carolina Individual Income Tax Return, N.C. Dept. of Rev., 03/19/2021.)
The Vermont Department of Taxes (DOT) has issued guidance on the federal American Rescue Plan (ARP), signed into law on March 11, 2021, and how it may affect taxpayers’ 2020 Vermont tax returns. The ARP includes a retroactive provision for tax year 2020 excluding the first $10,200 of unemployment insurance (UI) benefits received in income per individual, if the taxpayer received less than $150,000 in income in 2020. This exclusion does not automatically apply to Vermont state income taxes, as Vermont currently only conforms to federal tax law through December 31, 2019. For those Vermont filers that have not filed yet and received UI benefits, their Vermont personal form begins with federal adjusted gross income (AGI) and will automatically include this exclusion. If the Vermont Legislature eventually does conform with federal law, taxpayers who included the exclusion would not need to take further action. If the legislature does not conform to federal law, the DOT will issue guidance on how to amend the return and provide a grace period to do so. Taxpayers who already filed a return should not file an amended return at this time but should wait for further guidance from the IRS and the DOT. The ARP also expanded the earned income tax credit (EITC), and the child and dependent care tax credit (CDCTC) for tax year 2021. Vermont offers state credits equal to 36% of the federal EITC and 24% of the federal CDCTC, but the Vermont Legislature would need to pass a law conforming to the 2021 tax law changes to have these federal program expansions flow through to the Vermont credits. (COVID-19 Update: New Federal Exclusion of Unemployment Compensation, Vt. Dept. of Taxes, 03/17/2021.)
Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.