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Unemployment Exclusion Adjustments

Vermont Department of Taxes to adjust most qualifying personal income tax returns and issue refunds for 2020 unemployment exclusion

The American Rescue Plan Act (ARPA), signed into federal law on March 11, 2021, included a retroactive personal income tax provision for tax year 2020. The provision excluded from taxation the first $10,200 of an individual’s unemployment insurance benefits, so long as the modified adjusted gross income (AGI) reported on the tax return is less than $150,000 in 2020. Read more from the Internal Revenue Service (IRS) about this new federal exclusion.

This unemployment exclusion also applies to Vermont personal income taxes filed for tax year 2020. Because the exclusion was enacted after the filing season had opened, many Vermonters with unemployment benefits had already filed their state personal income tax return before the exclusion was available.

To help these Vermonters get refunds from this exclusion, the Vermont Department of Taxes will begin recalculating 2020 Vermont personal income tax returns and will issue refunds to qualified taxpayers who filed electronically before April 1, 2021. Taxpayers who receive an automatic adjustment will also receive a letter summarizing the adjustment made.

Vermont taxpayers who already filed and took the unemployment exclusion on their federal taxes do not need to take any further action to claim the exclusion in Vermont. Because of the way income is reported on a Vermont personal income tax return, a taxpayer who claimed the exclusion on their federal tax return will already have the exclusion applied to their Vermont tax return as well.

Please review this guidance and the associated frequently asked questions to understand if you are eligible for an automatic adjustment related to the unemployment exclusion.

Frequently Asked Questions

The Tax Department will adjust Vermont personal income tax returns that were filed electronically before April 1, 2021, reported unemployment income on their federal return, and meet the federal eligibility criteria for the exclusion. Taxpayers who receive an automatic adjustment for the exclusion may be sent an additional or increased refund and will also receive a letter summarizing the adjustment made.

Paper Filers: The Department will not be able to adjust paper-filed returns. If you paper-filed your Vermont return and did not claim the UI exclusion when you filed, you can file an amended return to claim the unemployment exclusion. Amended returns to claim this exclusion in tax year 2020 must be filed on or before May 17, 2024.

Newly Eligible Credit Beneficiaries: Because the unemployment exclusion lowers adjusted gross income (AGI), some taxpayers may be newly eligible for certain income-based tax credits not claimed on their original return. This includes two federal credits that flow to the Vermont return (EITC and Child and Dependent Care Credit) and the Vermont exemption for military pay.

If a taxpayer’s unemployment exclusion and revised AGI makes them newly eligible for one of these credits, they should file an amended tax return with the Department to claim the additional tax benefit.

If you qualify for this exclusion and already claimed one of these credits, the Department will automatically adjust the credit with the best information available for you.

Yes. The Department will adjust credit amounts for filers who qualify for this exclusion and claimed the Earned Income Tax Credit or the Child and Dependent Care Tax Credit on their original Vermont personal income tax return. Many filers who claimed these credits will see larger Vermont credits because of this exclusion.

Because of the way income is reported on a Vermont personal income tax return, a taxpayer who claimed the exclusion on their federal tax return will already have the exclusion applied to their Vermont tax return as well. You should not need to take any additional action to claim the exclusion on your Vermont personal income tax return.

If your return is adjusted, your tax liability for 2020 will be reduced, and you may be entitled to an additional or increased refund. The Department will issue this refund automatically. For taxpayers who will receive an additional refund, the Department will issue refunds by direct deposit for taxpayers who previously received their 2020 Vermont personal income tax refund by direct deposit.

The Department expects to begin issuing refunds from these adjustments in early August and will provide updates about timing on this webpage.

If you are eligible for an automatic adjustment related to the UI exclusion, the Department will make the adjustment later this summer and update the tax bill you received accordingly.

If you are not eligible for an automatic adjustment, you must file an amended tax return to receive the exclusion, and the Department will issue a new tax bill once it has received and processed your amended return.

Follow the IRS updated instructions to calculate your modified federal adjusted gross income. If less than $150,000, please recompute your revised federal Adjusted Gross Income (AGI) with your federal unemployment exclusion and use that as the starting point for your Vermont IN-111.

The Department anticipates that the automatic return adjustments will eliminate the need for taxpayers to amend. Amending prior to the Department making the automatic adjustment may result in a delay in your adjustment and therefore a delay in any additional refund you are entitled to. For taxpayers who filed by paper or who now qualify for additional credits that were not claimed on the original return, you can amend your return at any time.