If you’ve received unemployment benefits in 2020, we have good news for you! The IRS will begin refunding people who have already filed tax returns without claiming the newly approved unemployment benefits tax break in May of 2021.
Since the pandemic started, approximately 40M Americans have received unemployment benefits. Many of these Americans were hit with a surprise tax bill on the jobless aid they received.
The federal government-backed unemployment benefits tax break comes into fruition after changes were made to the recently passed American Rescue Plan. The new stimulus package created a tax break for the millions of Americans who received unemployment benefits throughout 2020.
This legislation allows those who earn less than $150,000 a year to exclude unemployment compensation: up to $20,400 if married filing jointly or $10,200 for all other qualified taxpayers.
Note: The tax break/legislation only applies to 2020 unemployment benefits.
What if I already filed?
If you’re one of the millions who filed their taxes early, no need to worry. The IRS has urged you to wait and abstain from filing an amended return if they missed claiming the unemployment tax break on their return. Recently, the IRS has claimed that these filers can expect to see an automatic refund sometime this spring or summer (they have said they are starting to send payments out in May)
What if I have not filed?
If you haven’t claimed the benefit and filed early, make sure you let your accountant know and they will assist you in calculating your benefits and the amount you can claim on your tax return.
Does this also apply to state taxes?
The answer varies depending on your state.
Some states already exempt unemployment taxes, such as New Jersey, California, Montana, Virginia, and Pennsylvania. And some don’t have state income taxes at all, including Florida, Texas, Washington, Alaska, Nevada, Wyoming, and South Dakota.
States must still decide whether they will also offer the tax break on state income taxes.
However, it is important to note that it is possible that some may still choose to tax the jobless aid.
Either way, this will come as a relief during these difficult times and it is important to keep yourself informed and in the loop. Stay tuned for more updates as they come in!
Didn’t receive a stimulus? Check out our article on the Stimulus Rebate Tax Credit!