In the coming days, DOR will be issuing notices to approximately 20-25,000 taxpayers who excluded unemployment compensation income from their 2020 Indiana returns.

The notices will inform the taxpayer that an adjustment was made to their state AGI to reflect the complexities caused by federal legislative changes passed in the middle of the 2020 tax filing season.

The department has programmed their system to automatically make the adjustments, if the taxpayer filed electronically, so these taxpayers generally will not have to file an amended return. If you have clients with incorrect adjustments or any related issues, please contact the Practitioner’s Hotline at:  317-232-2240 select option 2 from main menu or via email: taxprac@dor.in.gov to resolve any issues.  

If penalties and interest apply as a result of the adjustment, they will be automatically waived by DOR if filed electronically. So, unless the taxpayer owes money to the state, there should be nothing they or their representatives need to do.

Please note:  Although DOR is able to adjust most affected returns that were filed electronically, taxpayers who filed using paper forms need to file an amended return if corrections are needed to properly report unemployment income and calculate the Indiana deduction.

Background: 

Indiana statutorily conforms with IRC as of a fixed date which was 1/1/2020 prior to the legislative session. As Congress enacted various COVID-19 federal relief acts, legislation needed to be passed by the Indiana General Assembly and signed by Governor Holcomb to allow conformity with various provisions.

Of course, tax season was in full swing while legislators worked through various legislation to couple or decouple with federal changes. At the end of the session, conforming provisions were included in HEA 1001, the state’s budget bill, and in HEA 1436, which decoupled Indiana from the federal unemployment income exclusion of up to $10,200. Indiana’s fixed date for conformity with IRC is now 3/31/21.

Since nothing could be in effect until legislation was passed, over 30 tax software providers handled the state unemployment income exclusion in a variety of ways. This resulted in a need to adjust some taxpayer’s AGI calculations.

As DOR worked through the implementation of the unemployment income provisions, they were aware the agency has statutory authority to waive penalties assessed on the adjusted liability, but an Executive Order (see section 7) which was signed by Governor Holcomb on May 28 was needed to allow the interest to be waived for taxpayers. The waiver of penalty and interest extends through September 30.