American Rescue Plan Act (ARPA) Unemployment Exclusion Adjustments
The American Rescue Plan Act of 2021 (ARPA) was signed into law by President Biden on March 11, 2021. ARPA includes a retroactive provision making the first $10,200 per taxpayer of 2020 unemployment benefits nontaxable for taxpayers with modified federal adjusted gross income (AGI) of less than $150,000. For married, filing jointly taxpayers, each spouse may exclude up to $10,200.
The Nebraska Department of Revenue (DOR) will automatically adjust the AGI and recalculate the tax on the returns of individuals who electronically filed their returns with Nebraska prior to April 1, 2021 to the extent that DOR can determine that the unemployment compensation was not excluded from income. There are exceptions noted below.
If this adjustment is made to your return, you will receive a letter from DOR notifying you of the correction. Please review the adjustment made and your filed return when you receive this notification and consider if an amended return is needed. Please attach a copy of your notice of adjustment from the IRS or a copy of the federal amended return if you file a Nebraska amended return.
If any of the following apply, DOR will not automatically adjust your return to exclude any unemployment that should be excluded under ARPA. To exclude this income, you must file an Amended Nebraska Individual Income Tax Return, Form 1040XN, to receive the adjustment that you are entitled to:
- Returns filed on paper;
- Returns filed using NebFile;
- Returns claiming credit for tax paid to another state on Nebraska Schedule II;
- Partial-year or nonresident returns;
- A Nebraska amended return was previously filed for tax year 2020;
- If the box on line 29 on your Nebraska return was checked for using federal tax; or
- Your return was filed after March 31, 2021, and did not claim the exclusion for unemployment compensation.
DOR will not automatically adjust credits that may be impacted by the reduction to federal AGI. Taxpayers who become eligible for any credits or any increase in credit amounts due to this adjustment must file an Amended Nebraska Individual Income Tax Return, Form 1040XN, to claim or change a credit.