Unemployment Compensation in California – Community Property Split

From Spidell

If a married couple’s combined AGI (calculated without any UI compensation) is below $150,000, then MFJ taxpayers may exclude up to $20,400 of unemployment income even if one of the spouses had less than $10,200 in UI and the other spouse had more than $10,200. That is because California is a community property state and the Tax Court has recognized that UI is treated as community property. (Calhoun v. Commissioner (1992) 64 TC 222) However, your tax software may not properly split this income, and could improperly limit the exclusion if one spouse received less than $10,200. Tax professionals need to watch out for this and apply a manual override in this situation.

Married taxpayers with AGI above the $150,000 may file MFS to bring their AGI below the limit, which allows them to each claim up to the $10,200 maximum exclusion. …

Note – I would add that you need to talk to a qualified tax professional before you change your filing status to married filing separately because there are a lot of other consequences to doing this, such as a large increase in Medicare premiums

Personal Protective Equipment Deductible as Medical Expense

The IRS issued Announcement 2021-7 today clarifying that the purchase of personal protective equipment, such as masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of coronavirus are deductible medical expenses.

The amounts paid for personal protective equipment are also eligible to be paid or reimbursed under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs), or health savings accounts (HSAs).


Please remember that in order to take this as a deduction, you have to itemize deductions rather than taking the standard deduction and your total medical expenses have to exceed the 7.5% floor.

Obviously, if you’re in business, this is an ordinary and necessary business expense and should be fully deductible

Tax Filing Deadline Extended – Not 1st Est Tax payment

Here is a notice From Spidell Tax:

California conforms to IRS May 17 extension, and AB 80 update (03-18-21)

The FTB has confirmed that California will follow the IRS filing and payment extension date of May 17, 2021, for individual taxpayers only. Like the IRS extension, the California extension will not apply to the estimated tax Q1 payment date of April 15, 2021. Taxpayers must pay their California estimated tax by April 15, 2021, to avoid penalties.

There is still no news on AB 80, the PPP forgiveness deduction conformity bill. We wait while the state tries to clarify whether we will lose federal funding from the American Rescue Plan Act if California enacts this legislation. Because it’s unlikely, in our opinion, that this will happen quickly, we recommend filing extension vouchers for any affected business and include the estimated state tax on the disallowed deductions.

Senate passes COVID relief bill, onto House

The Senate has passed the COVID relief legislation which includes a provision that the first $10,200 of unemployment compensation in 2020 will be nontaxable. Now onto the House where is expected to be passed. I predict this will require the IRS to extend the April 15 filing deadline in order to make changes to its tax software and allow the software vendors to do the same.


Stimulus Payment Information

Information from Drake Software on Stimulus Payments:

Recovery Rebate Credit

The IRS announced last week that, as required by law, all legally permitted first and second round of Economic Impact Payments have been issued. Get My Payment was updated on January 29 to reflect the final payments and will not be updated again. If individuals didn’t receive all or part of their payment, they may be eligible to claim the Recovery Rebate Credit with their 2020 tax return.

Important Notes:

Claiming the wrong amount of the Recovery Rebate Credit will cause the return to require additional IRS review which will delay refund processing. Taxpayers can confirm their stimulus payments either by referencing IRS-mailed Payment Confirmation Notices 1444 and 1444-B, checking their bank account activity, creating/viewing their online account, verifying issued payments through the Get My Payment tool, or requesting an account transcript.

Eligibility for the RRC is based on 2020 tax year information, while the Economic Impact Payments were based on 2019 (or 2018) information.

Watch this video for data entry tips on the Recovery Rebate Credit.

Watch video: Recovery Rebate Credit

Additional RRC information on IRS.govhttps://lnkd.in/gTtB7aT


California Agreement Covid Relief

The governor and legislative leaders have agreed on a package which includes the following:
1. $600 in one-time relief to households receiving the California EITC for 2020
2. a four-fold increase – from $500 million to more than $2 billion – for grants up to $25,000 for small businesses impacted by the pandemic, and also allocates $50 million for cultural institutions.
3. The agreement also partially conforms California tax law to new federal tax treatment for loans provided through the Paycheck Protection Plan, allowing companies to deduct up to $150,000 in expenses covered by the PPP loan.

#PPPConformity #CATaxes