By: Joshua C. Black, Esq.
The COVID-19 pandemic led to a lot of hardship in 2020 including a record number of Americans who filed for unemployment benefits. If you are one of these people, there is important information you should know before filing this year’s federal income tax return.
Thanks to the most recent stimulus bill, eligible taxpayers can now avoid paying taxes on some unemployment earnings.
The American Rescue Plan, signed into law by President Joe Biden on March 11, 2021, provided a lot of benefits for financially-strapped Americans. From items like extended unemployment benefits, stimulus checks and postponement of evictions for renters, this law will help reduce the financial stress caused by the COVID-19 pandemic.
For U.S. taxpayers who were already concerned about tax liability and the pressure of owing money to the IRS during an already challenging year, the third stimulus relief bill provides a break on paying taxes on income provided by way of unemployment benefits.
The American Rescue Plan affords an unemployment tax break by waiving federal taxes owed on up to $10,200 of unemployment benefits, per person. This means the first $10,200 of unemployment income is now seen as tax-free for individuals with an adjusted gross income of less than $150,000. For households filing taxes jointly as a married couple, the break is double - $20,400.
If you filed your 2020 return prior to the signing of the relief bill, don’t worry. It looks like the IRS anticipated this challenge. They are currently working on a fix that means most people who collected unemployment benefits and who qualify for the tax break should be covered and they will not have to file an amended tax return to recoup the taxes paid.
Tax payers should also be aware the deadline for filing 2020 taxes has been extended to May 17, as have the deadlines for personal IRA and HSA contributions, which could also lessen your tax burden.
For more information visit www.IRS.gov.
If you would like to speak with an Arizona employment attorney regarding your specific situation, reach out to the Law Office of Joshua Black, PLC, at (623) 738-2225.