2020 Unemployment Compensation Exclusion FAQs — Topic E: Impact to Income, Credits, and Deductions

Q1. Will this exclusion affect how I calculate certain income and/or credits on my 2020 tax return? (added April 29, 2021)

A1. Yes. When figuring modified adjusted gross income for any of the following deductions or exclusions, include the full amount of your unemployment compensation reported on Schedule 1, Line 7, unreduced by any exclusion amount:

  • Taxable Social Security Benefits (Social Security Benefits Worksheet in the Instructions for Form 1040 and 1040-SR)
  • IRA Deduction (IRA Deduction Worksheet in the Instructions for Schedule 1 in the Instructions for Form 1040 and 1040-SR)
  • Student Loan Interest Deduction (Student Loan Interest Deduction Worksheet in the Instructions for Schedule 1 in the Instructions for Form 1040 and 1040-SR)
  • The exclusion of Interest from Series EE and I U.S. Savings Bonds issued after 1989 (Form 8815)
  • The exclusion of Employer-Provided Adoption Benefits (Form 8839)
  • Tuition and Fees Deduction (Form 8917)
  • The deduction of up to $25,000 for active participation in a Passive Rental Real Estate Activity (Form 8582)

See the specific form or instructions for more information.

Q2. Will the IRS automatically adjust other impacted items on my return if I claimed them originally, such as credits and deductions? (updated July 8, 2021)

A2. Yes. The IRS will recalculate any other credit or deduction that was claimed on the original return that was impacted by this automatic correction.

Example: You claimed $50 for the Earned Income Tax Credit (EITC) on your 2020 tax return. Because the unemployment compensation exclusion reduced your AGI, you're now eligible for a $250 EITC. We'll recalculate the credit amount and make the adjustment.

In addition, if you did not claim the Recovery Rebate Credit, Earned Income Credit with no qualifying dependents or the Advance Premium Tax Credit on your tax return, but are now eligible when the unemployment exclusion is applied, you do not need to file an amended return. The IRS will calculate the credit for you and include it in any overpayment.