Under the $1.9 trillion American Rescue Plan, unemployed workers could qualify for a tax exemption.Here’s how.May 1, 2021 2:00 a.m.PT
The extra $300 unemployment benefit will continue into September.Sarah Tew/CNET Along with the the third round of stimulus checks for up to $1,400 to qualifying individuals and families, the March stimulus bill increased payments for the child tax credit and extended the bonus $300 unemployment checks.
The law also added a $10,200 tax exemption for people receiving unemployment insurance benefits.
Unemployed individuals can receive a weekly $300 bonus check until Sept.
6.Many states have automatically renewed unemployment insurance benefits, but some recipients may have issues when they reach the benefit year ending date (PDF).States limit benefits to one year, and the money is typically cut off after that date.The 2021 American Rescue Plan extends that unemployment insurance, but states require recipients to either file a new claim or request an extension.Because it varies from state to state, those who have been unemployed for a year should get in contact with their state’s labor department.
Read the IRS guidance for how to use the tax exemption for unemployment insurance when you file your taxes (the deadline to file is May 17 ).The plan lets tax filers who received benefits exempt the first $10,200 of funds as long as their modified adjusted gross income is less than $150,000.Those who already filed will not have to file an amended tax return.
The IRS says it will recalculate and send out tax refunds to those who qualify starting in May, after the exemption is applied.Here’s everything you need to know about how the new package will help people who are unemployed.In addition, here’s what to know about President Joe Biden’s next stimulus plan .How much money could you get under Biden’s plan if you’re unemployed?
Biden’s $1.9 trillion COVID-19 relief package extends enhanced unemployment benefits until Sept.
6, with a $300 federal bonus on top of what your state pays.That’s down from the proposed $400 weekly bonus from an earlier version of the bill, and down from the additional $600 per week extended in last year’s CARES Act .
The period between March 14 and Sept.6 spans 25 weeks.Once payments pick up, that’s $7,500 in federal unemployment insurance that you could count on in addition to your state’s check amount.Now playing: Watch this: Stimulus check 3: How much money you’ll get 2:32 How the $10,200 tax break works
The IRS views unemployment insurance as income.In most cases, the state can withhold taxes like a typical paycheck.
However, it’s estimated that 10 million unemployment benefit recipients had no taxes withheld , which means they would have a substantial tax bill to pay the following year.To counter that, the new COVID relief package includes a tax exemption of $10,200 for those with an adjusted gross income under $150,000.
The way the exemption works is the first $10,200 of unemployment insurance will not be taxable.If someone received $20,000 of benefits in 2020, they will only be taxed on $9,800 of it.
The IRS gave instructions on how to enter the exemption on tax forms .People who already filed their taxes without the exemption will have their returns recalculated and refund checks will be sent out as early as May .
Some states will also have an unemployment tax exemption on state income taxes, but not all of them.Here are the 13 states not providing a tax break: Colorado .