Stimulus bill unemployment benefits: How and why this new tax break could save you moneyMarch 16, 2021
Theare official now the was passed last week. Currently, the of up to are into bank accounts via — you can now . For unemployment, the amount you can get each week has been lowered — but the benefits include tax forgiveness and will be extended an additional month.
The original payment proposal would have sent $400 weekly and would have ended in August. However, the final bill offers, plus an exemption of up to $10,200 for last year’s unemployment payments. Under the new bill, your , as well as .
One sticking point that could still cause complications is your. Here’s what we know so far about what the new stimulus bill means for those who receive unemployment, and how the numbers could work out for you.
What are the current unemployment benefits in place?
Thefrom December’s bill have officially expired and have been replaced by the new bill. With that, those who are on unemployment will continue to receive $300 extra each week and the benefits won’t expire until Sept. 6.
How much unemployment money can I expect to get with the new stimulus bill?
Now that President Joe Biden has signed the new bill into law, you can receiveSept. 6. This is down from the House’s proposal of $400 a week. However, it does include a new tax break (more below).
Will the unemployment money I receive during the pandemic eventually be taxed?
By law, unemployment payments are taxable and must be reported on your federal tax return, according to the IRS. This includes the special unemployment compensation authorized under the COVID-19 relief bills. These tax bills can range from several hundred to several thousand dollars — a major burden for those who have been out of work, many of whom did not know the benefits would be taxed, The Washington Post reported.
However, with the new stimulus bill, up to $10,200 in last year’s unemployment payments can be exempt from taxes if your according to new exclusions from the IRS. If your AGI is higher, you can’t exclude any unemployment compensation.is less than $150,000,
There are other implications, too. For one, it’s retroactive: You could get the tax break for any unemployment collected in 2020, but not in 2021. For another, tax season has already started, and millions of people have filed returns already. If you collected unemployment and have already filed your taxes, the IRS is urging you not to file an amended return and will provide you will additional guidance.
According to the White House, the addition of the tax break will provide more relief to the unemployed than the previous legislation did. However, according to tax experts, it really depends on your specific situation (more below).
Will I get more money this time? Or less?
It depends. The tax break applies only to benefits received in 2020, whereas the reduced $300 weekly payments would be for 2021. Some people could get a tax cut under this plan because they got unemployment in 2020, but no longer do, so this deal would be a net gain for them, according to Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.
The same is also true in reverse, Holtzblatt said: People who did not receive unemployment in 2020 but who are currently unemployed would get smaller benefits under this current plan, and no gain from the tax break.
Here’s one calculation that shows how this could end up bringing you more money, according to Andrew Stettner, a senior fellow at the progressive think tank The Century Foundation. Note that the additional unemployment insurance benefit will end Sept. 6 under the newest legislation.
Others remain skeptical. “Allowing a deduction or exclusion for UI benefits for tax purposes would not help the lowest-income workers and it would not be as progressive as simply giving people more UI benefits,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy. “Workers with the lowest incomes pay federal payroll taxes but they earn too little to owe any personal income taxes. So if you give them a deduction for their personal income taxes, that does not help them at all.”
The people who benefit the most from the changes are people who have a good income and are unemployed for only part of the year, or someone who is unemployed but has a spouse who makes a decent salary, “because a tax deduction will provide the most benefit to people in the highest personal income tax brackets,” Wamhoff said.
How can I file an amended tax return if I’ve already filed?
At this time, the IRS is urging taxpayers to not file an amended tax return if they’ve already completed their taxes. “The IRS will provide taxpayers with additional guidance on those provisions that could affect their 2020 tax return, including the retroactive provision that makes the first $10,200 of 2020 unemployment benefits nontaxable,” the agency said in the statement March 12.
If you haven’t already filed your 2020 taxes, you can claim the new unemployment tax break on your regular return. The IRS said it will provide a worksheet for paper filers and will work with tax software companies to update the current software.
(Here’s more about, especially if you need to — even . We’ve also got information about , and .)
When can I expect to get my unemployment tax break?
The IRS’s website says to allow up to 16 weeks for processing your amended tax return.
For more, here’s, and .
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