Unemployment benefits: How much money can married couples save on taxes?
The new stimulus bill includes tax relief for recipients of unemployment benefits, allowing you to knock thousands of dollars off your tax bill.
On Wednesday the House of Representatives passed the revised $1.9 trillion stimulus bill, giving Congressional approval for President Joe Biden’s American Rescue Plan. It was the second time the House had voted on the plan, but the proposal was amended in the Senate last week.
Included in the package is a six-month extension to the additional unemployment programmes that have been a vital lifeline for millions over the last year.
The new bill extends the existing $300 per week federal unemployment benefits until September, after Biden’s initial $400 per week proposal was overruled in the Senate. However one addition since the previous covid-19 relief bill is a tax-free allowance for unemployment recipients, that can be deducted from 2020 tax filings.
Stimulus bill provides tax deduction for unemployment benefits
The bill that passed the House on Wednesday includes a provision that waives taxes for the recipients of unemployment benefits during 2020. Claimants who earn less than $150,000 per year will not be taxed on the first $10,200 of unemployment benefits that they received.
This means that a married couple would not be taxed on the first $20,400 of jobless support that they received in 2020. Around 40 million Americans received some form of unemployment benefits during 2020, meaning that this programme represents a significant outlay for the federal government.
However it is one that economists have concluded is a worthwhile outlay to ease the financial burden on those who have lost their jobs, particularly as the United States’ economic recovery begins to stall.
Elizabeth Pancotti, policy director at Employ America who wrote a paper for The Century Foundation on the issue, wrote in support of the proposal: “Partial tax forgiveness will ensure that millions of Americans don’t have to mail their relief checks back to the IRS, and can instead put food on the table, refill prescriptions and pay the rent.”
How to claim the unemployment benefits tax waiver
The first thing to note is that the tax-free benefits will be applied retroactively, and that only benefits received in 2020 will be eligible for the tax relief. We are currently in the middle of tax season and Americans have until 15 April to get their returns in for the 2020 tax year.
Anyone who is still yet to file their tax returns will no longer have to pay taxes on unemployment benefits received last year. Usually you would have to include these payments as taxable income but that will not be the case once the bill has been signed into law, which is expected to happen this Friday.
Filers who got their tax returns in early should have paid taxes on any unemployment benefits that they received, but it is not too late to claim the money back. The IRS allows filers to use an amended tax return to correct tax returns that have already been submitted, allowing recipients to reclaim taxes paid on 2020 unemployment benefits.