American Rescue Plan Act of 2021 - Nontaxable Unemployment Benefits - Filing & Refund Info (Updated 5/13/21)

(Updated 5/13/21)

Chart showing the implementation timeline for the American Rescue PlanIDOR has begun reviewing and adjusting accounts for qualifying taxpayers and will start sending letters in Mid-May explaining the update. This process is expected to take several months. If you are entitled to a refund, a paper check will be mailed to the address on file two to three weeks after the letter is sent.

The federally enacted American Rescue Plan Act of 2021 includes a retroactive provision making the first $10,200 per taxpayer of 2020 unemployment benefits nontaxable for individuals with modified federal Adjusted Gross Income (AGI) of less than $150,000.

If you have not filed either your federal or Illinois return – Follow the IRS updated instructions for Schedule 1 to calculate your modified adjusted gross income and file your federal and Illinois return. Taxpayers will not be required to add back any of the nontaxed unemployment benefits in computing their Illinois base income. If you are a non-resident or part-year resident of Illinois, we will provide additional guidance on the 2020 Illinois Individual Income Tax Forms page soon.

If you have filed your federal return prior to the passage of the Act but have not filed your Illinois return  Follow the IRS updated instructions for Schedule 1 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 IL-1040.  You may use a pro-forma* federal form 1040 or 1040-SR and Schedule 1 using the updated IRS instructions to calculate your revised adjusted gross income. Submit your IL-1040 with your updated amounts.

If you have filed both your federal and Illinois return – 

  • If you filed your return electronically before March 15, 2021, you do not need to do anything.  The Illinois Department of Revenue (IDOR) is planning to automatically update your Adjusted Gross Income (AGI) beginning next month. Once your return has been adjusted, you will receive a letter from IDOR explaining the update, and if you are entitled to a refund a paper check will be mailed to the address on file. If you disagree with the changes, you may respond to the letter.
    Note: IDOR anticipates return adjustments will eliminate the need to file an amended return. If you amend your return prior to IDOR's AGI update, you may experience a delay in your adjustment and any payment you are entitled to receive as a result of the adjustment. 
  • If you filed your return by paper or filed electronically after March 14, 2021 and did not report the unemployment exclusion on your federal return, you will need to file an amended return using Form IL-1040-X and include a pro-forma* federal Form 1040 and Schedule 1 showing the re-computation of your AGI. Please see the IRS website for more information on how to properly exclude unemployment income and re-compute your AGI. Write "Unemployment Exclusion" across the top of Form IL-1040-X.

Note: Railroad Unemployment and sick pay are not taxed by Illinois. If any amount of your Unemployment Exclusion includes railroad unemployment, do not include this amount on Schedule M, Line 37.  See Schedule M Instructions.

For additional information, please visit the IRS webpage: Tax Treatment of Unemployment Compensation.

*A pro-forma return is an estimated return based upon updated IRS instructions.