AMERICAN RESCUE PLAN

What states do not allow the $10,200 unemployment tax break?

There are 13 states that haven’t waived taxes on the first $10,200 of unemployment benefits, meaning taxpayers will need to pay state taxes on that income.

What states do not allow the $10,200 unemployment tax break?
TIMOTHY A. CLARY AFP

The American Rescue Plan passed in March gave an extra bit of help to those who were unemployed in 2020 and collected jobless aid. The law waives federal tax on up to $10,200 of unemployment compensation per person received in 2020.

The waiver is available to individuals and couples who have an adjusted gross income (AGI) of less than $150,000. Last week the IRS updated its guidance allowing workers to exclude unemployment compensation from AGI calculations. The tax agency has said that taxpayers that have already filed should “absolutely” not file an amended return but wait for further guidance.

Which states are taxing unemployment benefits?

As of Monday, there were 13 states that tax unemployment payments that had not followed the federal lead to extend a waiver to the first $10,200 in unemployment benefits claimed in 2020 according to H&R Block.

They are: Colorado, Georgia, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, North Carolina, New York, Rhode Island, South Carolina and West Virginia.

Will handle waiver administratively:

Another group of states don’t conform to the federal rule but will let taxpayers file as if the state does, effectively giving filers the waiver.

They are: Arizona, Ohio and Vermont

Partial unemployment benefits exclusion:

Two states offer partial unemployment compensation exclusions under state law.

They are: Indiana and Wisconsin

States that have adopted the federal waiver:

There are 14 states and DC that have adopted the new federal waiver. In those states, up to $10,200 of benefits are excluded from tax, but amounts in excess are taxable. The income-eligibility limit of $150,000 for individuals and married couples also applies.

They are: Connecticut, Iowa, Illinois, Kansas, Louisiana, Maine, Michigan, Missouri, North Dakota, Nebraska, New Mexico, Oklahoma, Oregon and Utah, as well as Washington, DC.

States that haven’t adopted the American Rescue Plan’s tax break may still opt to do so. To check whether your state is ready for you to file your state income tax now check here.

Which states don’t tax unemployment benefits?

The remaining states either don’t tax income or don’t tax unemployment benefits.

States that don’t tax unemployment benefits:

They are: Alabama, Arkansas, California, Delaware, Maryland, Montana, New Jersey, Pennsylvania, Virginia.

Which states don’t tax income?

There are nine states that don't have income tax, but two of them still require taxpayers to file a tax return under certain circumstances. In New Hampshire and Tennessee, if an individual taxpayer receives more than $2,400 or $1,250, respectively, in interest and dividend income, they have to file. In the other seven states taxpayers technically only have to file a federal income tax return.

They are: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, but you might not be off the hook completely.

In the remaining “taxable” 42 states and the District of Columbia, you will need to file a tax return if you reside there or are a resident. Some states have already changed their filing deadlines to synch with the extended federal deadline of 17 May, Oklahoma, Louisiana and Texas have until 15 June. The IRS provides a list of state tax agencies to check what the filing deadline is where you are a resident.

You must file a return where you are a resident and where you reside, in addition to your federal tax return

Americans move around to go where the work is, but that doesn't mean that they stop residing in their home state. So, for example, if you work in Nevada but you are a resident of California, you still need to report the income you earned in Nevada to the tax agency in California as well as your federal tax filing. Likewise, if you are a resident of Florida but work in Georgia, you will need to file a non-resident Georgia return even though Florida is a tax-free state.

Third stimulus check: latest updates

You can get the latest information on the third stimulus check, and updates on the possibility of a fourth direct payment, by following our dedicated live blog.

You'll also find news on other provisions in Biden’s economic-aid package, such as an enhanced child tax credit that offers qualifying families up to $3,000 per child aged six to 17, and $3,600 per child below six.