Brian Brammer

What to Know About Unemployment Benefits and Taxes

What to Know About Unemployment Benefits and Taxes

by | Apr 28, 2021 | Articles, blog, For Individuals, Latest News, Newsletter Article, Personal, Relief bill, Stimulus bill

2 minute read

Millions of Americans who received unemployment benefits in 2020 got a new tax break from the American Rescue Plan Act of 2021, which changed the rules to the way the federal government usually taxes unemployment benefits. Here’s what to know.

How the American Rescue Plan Act of 2021 Changed the Rules

On March 11, President Biden signed a $1.9 trillion coronavirus stimulus package into law. It includes a waive of federal tax on up to $10,200 of unemployment benefits an individual received in 2020. Ordinarily, unemployment benefits are fully taxable by the IRS and need to be reported on federal tax returns. This tax break benefits the millions of Americans who were forced to file unemployment during the pandemic due to job loss.

How the Tax Break Works

People whose adjusted gross income was less than $150,000 in 2020 are eligible to exclude up to $10,200 of unemployment benefits. The $150,000 is the same for all taxpayers, regardless of filing status (single or married). For example, two spouses who both received unemployment benefits may each exclude $10,200 from their income as long as they fall under the $150,000 adjusted gross income cutoff on their joint return. Keep in mind that taxpayers must include their total unemployment benefits received when calculating their income eligibility for the tax break. For instance, a single filer who made $140,000 in job income last year and also received $12,000 in unemployment benefits would not qualify for the tax break because their total income would exceed the $150,000 cutoff.

What If You’ve Already Filed Your 2020 Taxes?

Because this tax break was signed into law in the middle of tax season, some taxpayers would have already filed and claimed their full unemployment benefits on their tax return. On March 31, the IRS announced that, generally, taxpayers who have already filed would not have to resubmit their tax returns. The IRS will adjust and process qualifying returns automatically in two phases, beginning with single taxpayers who qualify for the tax break and followed by taxpayers who filed jointly. Refunds could be processed as early as May and will likely continue through the summer. For those who owe taxes, adjustments will be applied to outstanding taxes due.




About the Author

Brian Brammer, CPA and partner of Brammer & Yeend Professional Corporation, has been in public accounting since 1989 after graduating from Ball State University with a Bachelor of Science degree in accounting. Brian provides services to small businesses and individual clients in tax, accounting, business development, forecasts and financial analysis.

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