Taxes and Unemployment: What You Need to Know

Taxes and Unemployment: What You Need to Know

Unemployment payments are usually taxed as income by the federal government. That changed, however, in March 2021, when Congress passed the American Rescue Plan. The law provided for people (including joint filers) making less than $150,000 to exclude $10,200 in unemployment benefits from their income when they file their income taxes for the 2020 tax year. Because the change was made in the middle of a tax filing season, the IRS pledged to recalculate the tax bills of most taxpayers who received unemployment benefits and send them refunds. By late summer, however, many people were still waiting on their refunds. Other filers need to amend their tax returns on their own to get a refund. This applies to those who would qualify for additional deductions or credits not claimed on their original returns, according to Forbes.

How to Take Advantage
If you think you might qualify for a refund based on the new law, first check to see if the IRS is already processing your refund. You can do this by visiting and requesting a transcript of your tax returns. If the refund is not already in the works, speak to your tax preparer about filing an amended return to take advantage of the new tax benefits. Anyone who receives unemployment payments receives a Form 1099-G, Certain Government Payments, at tax time. You may need to request the form from your state if you did not receive it. Box 1 of the form will show the total dollar amount of unemployment payments you received. You may deduct $10,200 from that amount when you file your tax return, if you qualify for the deduction.

Some tax filers during the pandemic have found that a criminal using their identity has received unemployment benefits using their name. If this happens to you, immediately contact the police and your state unemployment agency to report the fraud and request corrected forms. The IRS urges taxpayers not to report as income on their tax returns any fraudulent payments they did not receive.

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