Did you collect jobless benefits in 2021? Then you’re going to need to sit back and wait to file your federal income tax return until you make sure you have all the right numbers in hand.
The deadline to file a federal income tax return and most states is April 18 this year. People have plenty of time to meet the deadline.
People may be confused because the rules changed temporarily for many people last year, thanks to some pandemic-related relief efforts.
Taxpayers received a surprising tax break relating to unemployment benefits received in 2020 only, as part of a $1.9 trillion stimulus package, which was signed into law in March 2021.
As part of the American Rescue Plan, many taxpayers were no longer required to pay taxes on up to $10,200 in unemployment benefits received in 2020. The exclusion was up to $10,200 of jobless benefits for each spouse for married couples.
Not everyone was covered by that temporary break.
The special provision to waive taxes on some unemployment income applied only to those who made less than $150,000 in adjusted gross income in 2020.
But that tax break doesn’t exist for 2021 returns – and it may not come back at all.
“There’s no exclusion this year. But last year at this point there was no exclusion either,” said Mark Luscombe, principal analyst for Georgia-based Wolters Kluwer Tax & Accounting.
Luscombe and other tax experts do not expect any last-minute changes, though, as there has been no big push in Congress to exclude some jobless benefits from taxes in 2021.
“At this point,” Luscombe said, “all unemployment compensation is 2021 is fully taxable and I’m not expecting an exclusion to be adopted.”
If you had taxes withheld on jobless benefits, the federal taxes are withheld at a 10% rate.
Many people who are financially strapped when they lose a job, though, often do not have taxes withheld. They could owe taxes when they file their 2021 income tax returns. But some key tax credits also can come into play so not everyone will necessarily owe money.