Ohio Update on the Unemployment Benefits Exclusion for Taxpayers Who Filed Prior to the Enactment of the American Rescue Plan Act

The American Rescue Plan Act (ARP), enacted on March 11, 2021, allowed a federal unemployment compensation exclusion of $10,200 from 2020 taxable income for taxpayers with an Adjusted Gross Income (AGI) of less than $150,000.

On March 31, 2021, Governor DeWine signed Sub. S.B. 18 into law which allowed individuals filing Ohio income tax returns for the tax year 2020 to claim the same unemployment compensation exclusion allowed on their federal income tax return.

The problem with these tax law changes occurring in March of 2021 is that many individuals had already filed their federal and/or Ohio income tax returns prior to the passage of the ARP and OH S.B. 18. The IRS subsequently issued guidance stating that taxpayers who filed their 2020 federal income tax returns prior to the ARP enactment would not need to file an amended tax return to claim the benefit of the allowable unemployment compensation exclusion. The IRS has begun automatically calculating the benefit and issuing refunds to eligible taxpayers.

The Ohio Department of Taxation has made the process a bit more difficult for taxpayers who filed Ohio tax returns prior to the passage of the ARP. The Ohio Department of Taxation recently issued guidance stating that Ohio will require impacted taxpayers to amend their originally filed 2020 tax returns to claim this Ohio benefit.

After the IRS makes the automatic adjustment referenced above, taxpayers impacted must do all of the following to obtain the exclusion on their Ohio income tax return:

1. File an amended Ohio IT 1040 (and an amended SD 100 for those who reside in a traditional tax base school district) to report your new federal adjusted gross income (AGI);
2. Include a copy of your IRS Tax Account Transcript showing your new federal AGI, which are available at irs.gov/individuals/get-transcript or by calling 800-908-9946; and
3. Complete the Ohio Reasons and Explanation of Corrections (Ohio form IT RE or SD RE).

1. When completing the “Reasons and Explanation of Corrections” form, check the “Federal adjusted gross income decreased” box and list “Federal unemployment deduction refund” in the “Detailed explanation” section.

Please note, if you are required to file an amended return with the IRS related to your unemployment benefits (for example, to claim a credit you are now entitled to based on a reduced federal adjusted gross income), you must wait to file your amended Ohio IT 1040 (and amended SD 100, if applicable) until after your federal amended return has been accepted by the IRS.

Please contact your Schneider Downs tax advisor if you need assistance with this matter and/or for any other tax issues you may be facing.