The IRS let me exclude up to $10,200 of my 2020 unemployment benefits under the American Rescue Plan Act, but Virginia added it back and assessed me -- is that right?

Plain-English summary

This ruling explains a timing trap from the pandemic era: Virginia's income tax doesn't automatically follow every new federal tax law the moment it's enacted -- it "conforms" to the Internal Revenue Code only as of a specific date the General Assembly sets and periodically updates (a "fixed-date conformity" system, in place since 2003).

A taxpayer received unemployment compensation in 2020. In March 2021, Congress passed the American Rescue Plan Act (ARPA), which let taxpayers with income under $150,000 exclude up to $10,200 of 2020 unemployment benefits from federal gross income. She properly excluded that amount on her federal return under the new law -- but then also claimed a Virginia subtraction for the same unemployment income on her Virginia return. On review, the Department added the unemployment compensation back into her Virginia taxable income and assessed additional tax; she appealed, arguing the benefits weren't taxable.

The problem was timing. Virginia's conformity date for the 2020 taxable year only reached through December 31, 2020 -- and the ARPA wasn't enacted until March 11, 2021, months later. Since Virginia hadn't yet conformed to the ARPA when the 2020 tax year's rules were locked in, the $10,200 exclusion simply wasn't part of Virginia law for that year (Virginia's conformity date was only later advanced to December 31, 2021, and even then most of those provisions applied only starting with the 2021 tax year). More fundamentally, allowing both the federal exclusion (removing the income from federal AGI, which is where Virginia's own computation starts) AND a separate Virginia subtraction for the same money would have let the taxpayer benefit twice for income she'd already excluded once. The Department found the add-back correct and upheld the assessment, noting the taxpayer would owe accrued interest along with the updated bill.

What this means for you

Anyone who excluded 2020 unemployment benefits under the ARPA on their federal return

If you also claimed a Virginia subtraction for that same unemployment income on your 2020 Virginia return, expect the Department to add it back -- Virginia hadn't conformed to the ARPA's unemployment exclusion for the 2020 tax year, and claiming both the federal exclusion and a Virginia subtraction for the identical income is a double benefit the law doesn't permit.

Anyone confused about why a federal tax break didn't carry over to Virginia

Virginia uses "fixed-date" conformity to the Internal Revenue Code -- meaning new federal tax laws only apply for Virginia purposes once the General Assembly formally advances the conformity date to include them. A federal law change enacted mid-year or later (like the ARPA, passed in March 2021) may not affect the Virginia treatment of an earlier tax year's return at all, even though it changed your federal return.

Anyone relying on a Virginia Tax Bulletin to check conformity dates

The Department publishes an annual Tax Bulletin announcing the current conformity date and any exceptions each time the General Assembly updates it (here, VTB 21-4 and VTB 22-1) -- checking the bulletin for the specific tax year in question is the reliable way to know whether a given federal law change actually applies to your Virginia return for that year.

Common questions

Q: I excluded ARPA unemployment benefits on my federal 2020 return -- can I also subtract them on my Virginia return?
A: No. Virginia hadn't conformed to the ARPA for the 2020 tax year (its conformity date only reached through December 31, 2020, months before the ARPA was enacted), and claiming both the federal exclusion and a Virginia subtraction for the same income is a disallowed double benefit.

Q: What is "fixed-date conformity," and why does it matter here?
A: Since 2003, Virginia has conformed to the Internal Revenue Code only as of a specific date set by the General Assembly, rather than automatically following every new federal law in real time. A federal change enacted after that year's fixed date generally doesn't apply to that year's Virginia return until the General Assembly later advances the conformity date to include it.

Q: Did the ARPA unemployment exclusion ever apply to a Virginia return?
A: Virginia's conformity date was later advanced to December 31, 2021 -- but even then, most of the newly conformed provisions (including this one) were made available only starting with the 2021 taxable year, not retroactively for 2020.

Q: How do I find out whether a given federal tax law applies to my Virginia return for a specific year?
A: Check the Department's Tax Bulletin for that period -- it announces the current IRC conformity date and lists any exceptions the General Assembly has carved out.

Citations and references

• Va. Code § 58.1-301 (Virginia terminology/conformity to the IRC, with exceptions)
• Va. Code § 58.1-322.02 17 (Virginia subtraction for unemployment benefits taxable under IRC § 85)
• IRC § 85(a), (c)(1) (unemployment compensation includible in gross income; ARPA exclusion)
• American Rescue Plan Act, Title IX § 9042(a), P.L. 117-2 (March 11, 2021) ($10,200 unemployment exclusion for 2020, AGI under $150,000)
• Virginia Tax Bulletin 21-4 (3/15/2021) (conformity date advanced to December 31, 2020)
• Virginia Tax Bulletin 22-1 (2/23/2022) (conformity date advanced to December 31, 2021; most new provisions effective only for the 2021 taxable year)

Subject

Virginia Taxable Income: Computation - Fixed Date Conformity Adjustments Subtractions: Unemployment Benefits - American Rescue Plan Act (ARPA)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-93

Original ruling text

May 5, 2022

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the “Taxpayer”) for the taxable year ended December 31, 2020.

FACTS

The Taxpayer received unemployment compensation during the 2020 taxable year. This income was not included in federal adjusted gross income (FAGI) reported on her federal income tax return pursuant to the American Rescue Plan Act (ARPA). The Taxpayer reported the same FAGI as the starting point for computing Virginia taxable income (VTI) and claimed a subtraction for it, however, on her 2020 Virginia individual income tax return. Under review, the Department added the amount of unemployment compensation excluded from FAGI and issued an assessment. The Taxpayer appealed, contending her unemployment compensation was not taxable.

DETERMINATION

Virginia Code § 58.1-301 provides, with certain exceptions, that the terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia . For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of VTI with FAGI. Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia .

Unemployment benefits are generally included in a taxpayer’s FAGI. See IRC § 85(a). Virginia Code § 58.1-322.02 17 allows a taxpayer to subtract the amount received for unemployment benefits that are taxable pursuant to IRC § 85. The ARPA, however, excluded the first $10,200 of unemployment benefits from gross income for each taxpayer with income less than $150,000 for any taxable year beginning in 2020. See Title IX, § 9042(a) of the ARPA, P.L. 117-2 (March 11, 2021). See also IRC §85(c)(1).

In 2003, Virginia began conforming to the IRC as of a specific or fixed date. Since then, the General Assembly has enacted legislation to move the date of conformity forward each year. Effective for taxable years beginning on and after January 1, 2020, Virginia’s conformity date was advanced from December 31, 2019 to December 31, 2020, with a number exceptions. See Virginia Tax Bulletin (VTB) 21-4 (3/15/2021).

The ARPA, which included that allowed taxpayers with adjusted gross incomes of less than $150,000 to exclude up to $10,200 in unemployment compensation from their gross income in 2020, was not enacted until March 11, 2021. Because Virginia only conformed with the IRC through December 31, 2020, the provisions of the ARPA were not in effect for 2020 individual income tax returns.

In addition, Virginia’s conformity date was advanced from December 31, 2020 to December 31, 2021, with the provision that most of the provisions would only be available for the 2021 taxable year. See VTB 22-1 (2/23/2022). Thus, the $10,200 unemployment compensation exclusion was not available for individuals on their 2020 Virginia returns.

In this case, the Taxpayer excluded her unemployment benefits from her taxable income on her 2020 federal return in accordance with the ARPA, but failed to add it back on the 2020 Virginia return. Allowing both an exclusion from FAGI and permitting a subtraction on the Virginia return for unemployment compensation would essentially allow the Taxpayer a double benefit by allowing subtraction for compensation that was not even included in total income. As such, the Department was correct in adding the unemployment benefits back to FAGI for purposes of computing the Taxpayer’s VTI. The assessment, therefore, is upheld.

The Taxpayer will receive an updated bill, which will include accrued interest to date. The Taxpayer should remit payment within 30 days of the bill date to avoid the accrual of additional interest.

The Code of Virginia sections and tax bulletins cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4053.B

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