Stimulus bill unemployment benefits: How much you might get and why you could get a tax break

March 6, 2021 0 By boss

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The latest stimulus change brings the total weekly unemployment benefit to $300, down from $400.


Sarah Tew/CNET

The Senate is currently working its way through the $1.9 trillion stimulus package, which includes a third stimulus check for up to $1,400 per person, as well as an extension of weekly bonus unemployment benefits. But the amount of unemployment money you could get as well as whether or not it is tax-exempt — and how to claim any tax breaks — remains up in the air. 

While the House of Representatives in February agreed to a $400 weekly payment ending in August, the Senate on Friday proposed several changes. Under the new Senate plan, people would get $300 a week until Oct. 4. But it would also make up to $10,200 in last year’s unemployment payments exempt from taxes — which could benefit your family. (Find out all the ways the stimulus bill could bring your family more money, including in tax breaks for parents and older adults.)

This is also tied up in your 2020 tax return, and things can get confusing — especially if you’ve already filed this year. But here’s what we know so far about what the latest stimulus bill proposal means for those who receive unemployment, and how the numbers could work out for you. 

What unemployment benefits are currently in place? 

In December, Congress approved weekly $300 federal unemployment checks as part of the $900 billion COVID-19 relief legislation, which also brought eligible people a second stimulus check of up to $600. (If you never received your first or second check, you can still claim that missing money on your tax return this year.)

The $300 unemployment checks are set to expire this month. If the new bill is passed into law by March 14, it would renew federal unemployment aid without a gap in funding. 


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How much unemployment money could I get from the latest stimulus bill? 

We won’t know exactly what benefits are included in the bill until Congress agrees on a final version and President Joe Biden signs it into law, which all parties are aiming to do by mid-March. But the latest Senate proposal, unveiled Friday, includes $300 a week through Oct. 4. This is down from the House’s proposal of $400 a week. However, it does include a new tax break (more below). 

Will my unemployment benefits during the pandemic get 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

But in the Senate’s proposal, up to $10,200 in last year’s unemployment payments would be exempt from taxes. This has a couple of implications. 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, you would have to file something called an amended tax return as soon as the bill was passed to benefit from this tax change. 

According to the White House, the addition of the tax break will provide more relief to the unemployed than the current legislation does. However, according to tax experts, it really depends on your specific situation (more below). 

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Typically, your unemployment benefits do get taxed. But the new stimulus bill could change that.


Sarah Tew/CNET

Does this mean I’ll be getting more or less money? 

It depends. The tax break would apply only to benefits received in 2020, whereas the reduced $300 weekly payments would be for 2021. Some people would 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, but 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

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 would 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 do I file an amended tax return?

If this version of the bill becomes law and you want to file for the new unemployment tax break, you’ll need to fill out IRS Form 1040-X, Amended US Individual Income Tax Return. You can do this electronically with tax filing software to amend your 2020 Forms 1040 or 1040-SR, assuming you filed those online. Or you can file it by mail.

You’ll need to include copies of any forms that you are changing from your original return. The IRS would likely provide a new form to claim this benefit. 

If you haven’t already filed your 2020 taxes by the time the bill passes, you can claim the new unemployment tax break on your regular return. (Here’s more about why you should file your taxes as soon as possible, especially if you need to claim missing stimulus money — even if you don’t usually have to file taxes. We’ve also got information about what could happen if a third stimulus check arrives during tax season, and stimulus check tax season pitfalls to avoid.)

When would I get my unemployment tax break? 

The IRS’s website says to allow up to 16 weeks for processing your amended tax return. 

For more, find out what we know so far about when the IRS could send out a third stimulus check, and everything new this year when you file your tax return



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