Stimulus bill unemployment benefits: This new tax break could save you moneyMarch 10, 2021
Some big changes are in the works to thethat are included in the . Over the weekend, the bill and the House will have its final vote Wednesday before being signed into law. The package also includes a of with . As for unemployment, the amount of money you could get has been lowered — but this time, the benefit includes tax forgiveness, and has been extended for an additional month.
The original payment that was agreed upon by thewas a $400 weekly amount that would end in August. However, the Senate approved changes that give and exempt up to $10,200 in last year’s unemployment payments, which could benefit your family. (Find out , including .)
Be aware, however, this is all tied to your, which could make things complicated, especially if you already filed this year. Here’s what we know so far about what the latest stimulus bill vote means for those who receive unemployment, and how the numbers could work out for you.
What are the unemployment benefits currently in place?
In December, Congress approved weeklyas part of the , which also brought eligible people a of up to $600. (If you never received your first or second check, you can still .)
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.
How much unemployment money can I expect to get if the newest stimulus bill becomes law?
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 amendment, unveiled Friday, includesSept. 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 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 amendment of the bill, 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 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).
Will I get more money now? Or less?
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, 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 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 I’ve already filed?
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’re 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, especially if you need to — even . We’ve also got information about , and .)
When could 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, find out what we know so far about, and .
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