Unemployment benefits 2020: how much is the tax-free waiver?
Thanks to a new inclusion in the stimulus bill, millions of Americans will get tax deductions or refunds on their unemployment benefits payments.
Unemployment benefits were the most controversial feature of the American Rescue Plan when it was put to a vote in the Senate this weekend and threatened to derail President Joe Biden’s bill entirely.
The stimulus bill contained $1.9 trillion of federal funding to address the public health and economic consequences of the pandemic. But it was the introduction of a tax waiver for unemployment benefits recipients that nearly saw the package fail to clear the Upper House.
In the end the Democratic caucus struck a deal to keep the $10,200 tax waiver in the bill, but what does this mean and how can you receive it?
Tax waiver could wipe $10,200 from your 2020 tax bill
In the course of discussions with Sen. Joe Manchin, the Democrat who threatened to vote against the bill, the weekly jobless payment was dropped from $300 to $400 and the length was also shortened by a few weeks to 8 September. However the 2020 tax waiver remains.
This means that taxpayers who received support during the course of 2020 will not be made to pay tax on the first $10,200 of unemployment benefits that they received. It is important to note that this is a retroactive waiver for benefits received in the 2020 tax year, not for the upcoming year's support.
Speaking to CNBC, Sen. Tom Carper was happy with the compromise: “We’ve found a way to...ensure that the millions of Americans who are still struggling to find work will see an immediate benefit before Tax Day this year.”
Usually, unemployment benefits are taxable and so have to be declared on your federal tax return. Therefore anyone who has already filed their tax returns may have paid tax on the 2020 unemployment benefits payments, but it is not too late to get that money back.
Once the stimulus bill is passed by President Biden, which should be within the next week, you will be able to file an amended tax return to retrieve the money that you have already paid.
Who will be eligible to receive the 2020 tax-free waiver?
Since the beginning of the pandemic, unemployment benefits have been one of the most important financial lifelines offered by the federal government.
As the American jobs market was ravaged by the pandemic, around 40 million Americans received unemployment insurance benefits last year, according to study from Century Foundation.
The total amount spent by the federal government on the support is thought to be over $580 billion, if you include the extra weekly $600 payments from the Federal Pandemic Unemployment Compensation (FPUC) programme and the $300 weekly payments provided by the Lost Wages Assistance (LWA).