Although jobless benefits are considered taxable income, the recently enacted $1.9 trillion American Rescue Plan allows individuals receiving unemployment to have the first $10,200 of those benefits exempt from federal income taxes.
Taxpayers with a modified adjust gross income of $150,000 or more are not eligible for the tax break. The income threshold is the same for both single and married tax filers.
According to some tax experts, taxpayers who suffered job loss during the pandemic could see $1,000 to $2,000 reduced off their total tax bill.
The law to have the first $10,200 unemployment exempt from their federal taxes took effect after the Internal Revenue Service (IRS) had already received at least 55 million individual tax returns. The good news is that the IRS may be able to adjust the already submitted and amended tax returns with no additional paperwork required.
The IRS will issue out refunds in two phases. The first phase will start for taxpayers who qualify to exclude up to $10,200 of unemployment benefits from their federal tax income.
The second phase will include married couples who file a joint tax return. Couples who file jointly, can waive tax on up to $20,400 of benefits.
It is still unknown as to whether the first phase of payments will also include married couples in which just one spouse received unemployment benefits, or if they will fall in the second round. It is also still unknown as to whether or not taxpayers with much more complex tax returns will be issued out a refund in phase one or if they will have to wait for phase two.
We will continue to update you with new information as this story develops.
Integrity Tax Advocates provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax advocates, contact us for a free consultation.