San Francisco Tax Preparation / CPA: CA – Exclusion of unemployment benefits from federal AGI may increase California tax credits
Individuals who received unemployment benefits in 2020 may qualify to receive more money from California through:
the California earned income tax credit (CalEITC);
the young child tax credit; and
the Golden State Stimulus payment.
This is because the American Rescue Plan Act of 2021 excludes a certain amount of unemployment benefits from federal adjusted gross income (AGI) for the 2020 tax year. The excludable amount is $10,200 for single taxpayers, and $20,400 for married taxpayers filing jointly and registered domestic partners. This reduces a taxpayer’s federal AGI for the 2020 tax year. The reduced federal AGI may qualify a taxpayer for increased California tax credits. Many taxpayers do not have to do anything to receive the additional benefits.
Taxpayers who filed their 2020 returns before March 20, 2021, claimed the CalEITC, and reported unemployment income do not need to do anything. The Franchise Tax Board (FTB) will make the required changes for them and issue related refunds beginning in August 2021.
Taxpayers who filed or will file their 2020 returns after March 11, 2021, claimed the CalEITC, and reported unemployment income also do not need to do anything. The FTB will process those returns within its normal refund and return processing timeframes.
Taxpayers who filed their 2020 returns, did not claim the CalEITC, reported unemployment income, and have federal AGI less than $40,201 (single) or $50,401 (married filing jointly) should see if they qualify for the CalEITC. If they qualify, they do not need to amend their tax returns. They may simply complete Form 3514, California Earned Income Tax Credit, and mail it to:
Franchise Tax Board
PO Box 942840
Sacramento CA 94240-0040
Most individuals who qualify for the CalEITC also qualify to receive a one-time Golden State Stimulus payment. Most individuals who qualify do not need to do anything to receive the stimulus payment. The FTB will issue stimulus payments after it processes the 2020 tax returns filed by eligible individuals. News Release, California Franchise Tax Board, April 30, 2021