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Is unemployment taxable by the IRS?

Many workers in the US have received unemployment benefits during the pandemic, but are they able to be taxed by the IRS?

Update:
Many workers in the US have received unemployment benefits during the pandemic, but are they able to be taxed by the IRS?
JOE RAEDLEAFP

The American Rescue Plan (ARP), passed in March 2021, included a measure that allowed those who had received unemployment compensation to withhold the reporting of $10,200 when filing taxes. This year no bill that includes and provision like this has been passed, meaning that when those who received unemployment benefits file with the IRS they will have to pay taxes on all compensation they were distributed. 

 While initial unemployment claims did hit a record low towards the end of 2021, more than twenty million workers still claimed benefits throughout the year. When filing you must report unemployment benefits as a part of your gross annual income.

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How will I know how much to report?

If you received benefits then your state unemployment office will send you a 1099-G that you will report when you file. If you would like to determine if your unemployment benefits are being distributed to you pre-taxed you can use the IRS tool 'Are Payments I Receive for Being Unemployed Taxable?'

Still waiting for your tax return?

Last year, many people who had received unemployment insurance had submitted their tax returns to the IRS before Congress passed the American Rescue Plan. This meant that the IRS had to recalibrate their refund amount and send out an updated payment. On 12 January, the IRS reported that they have "issued over 11.8 million refunds totaling $14.5 billion. "The agency is still working on more "complex returns." When the IRS has finalized a person's corrected return they will be sent a letter within thirty days that they will receive their revised refund.

Has the Omicron variant led to increases in unemployment claims? 

So far the data has only shown a slight increase in initial unemployment claims. The Department of Labor reported that for the week ending on 8 January, initial unemployment claims increased by 23,000 to 230,000 over the previous week. These claims have also moved the "4-week moving average [to] 210,750, an increase of 6,250 from the previous week's unrevised average of 204,500.

Greatest Increases for the week ending on 1 January:

Which states saw the most significant changes in initial unemployment claims?

  1. New York (+8,812)
  2. Pennsylvania (+6,772)
  3. Connecticut (+6,020)
  4. Washington (+4,626)
  5.  Michigan (+3,923)

Greatest decreases:

Which states saw the most significant changes in initial unemployment claims?

  1. Missouri (-1,086)
  2. Tennessee (-674)
  3.  Puerto Rico (-329)
  4.  Rhode Island (-288)
  5.  New Mexico (-101).

This data came around the same time that the December Jobs Report showed that the unemployment rate fell to its lowest rate of 3.8 percent during the pandemic last month. In response, the White House said that the success if due to the American Rescue Plan which "got the economy off its back and moving again, back on its feet, getting over 20 — 200 million Americans fully vaccinated; got people out of their homes and back to work, even in the face of wave after wave of COVID." 

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