Stimulus bill unemployment benefits: This new tax break could save you money

March 10, 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

Some big changes are in the works to the weekly bonus unemployment benefits that are included in the $1.9 trillion stimulus package. Over the weekend, the bill passed the Senate and the House will have its final vote Wednesday before being signed into law. The package also includes a third stimulus check of up to $1,400 per person with new income limits. 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 the House of Representatives in February was a $400 weekly amount that would end in August. However, the Senate approved changes that give people $300 a week until Sept. 6 and exempt up to $10,200 in last year’s unemployment payments, which could benefit your family. (Find out all the ways the new stimulus bill could bring your family more money, including tax breaks for parents and older adults.)

Be aware, however, this is all tied to your 2020 tax return, 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 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 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, includes $300 a week through Sept. 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). 

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


Sarah Tew/CNET

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 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 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 when the IRS could send out a third stimulus check, and everything new this year when you file your tax return

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.



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