Are Your Unemployment Benefits Taxable?

Melissa Clary Tax 0 Comments

President Biden’s American Rescue Plan has extended the $300 benefit through September 9, 2021, and increased the number of weeks an individual can qualify for the benefits from 50 to 74.

The American Rescue Plan Act originally slated the weekly amount to be $400. That was before a provision to treat the first $10,200 of unemployment income as tax exempt was included, at which point the weekly supplemental amount was reduced to $300. However, the tax exemption of the first $10,200 of unemployment compensation will only apply to taxpayers with AGIs less than $150,000. Prior to this change, unemployment benefits were fully taxable income for federal purposes.

This change is retroactive to 2020, and if you have already filed your 2020 tax return, on which you included unemployment compensation, and you qualify for the income exclusion, the return can be amended to take advantage of the up to $10,200 tax-exempt portion of the unemployment income. There is a remote chance the IRS might make the adjustment automatically.

Those who received unemployment benefits will be sent a Form 1099-G (Certain Government Payments) from the state that paid the benefits. This tax form shows the amount of unemployment benefits paid to the individual during 2020 and the amount of income tax withheld, if any. Call Key2 Accounting today for more information.

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