Tax season is fast approaching, and people who received unemployment benefits in 2021 will not have a tax break like it did in 2020 . About 25 million people received unemployment benefits in 2021, according to CNBC, and all of them will have to pay taxes on the money received.
Remember that unemployment benefits generally count as taxable income. The American Rescue Plan, the relief law Democrats passed in March last year, authorized a federal tax exemption on up to $ 10,200 in benefits per person for 2020.
Households qualified for tax exemption if their income was less than $150,000 a year.
However, as of yet, Congress has not passed a law offering a similar tax break for 2021 benefits and does not appear to plan to do so.
This means that households that did not withhold federal taxes from benefit payments received in 2021 could owe a tax bill or receive a smaller refund this season to make up the difference.
In 2020, the Covid-19 pandemic caused America’s unemployment rate to skyrocket to its highest level since the Great Depression. About 40 million people obtained unemployment benefits that year, each receiving $14,000, on average . However, less than 40% of the payments had taxes withheld.
The IRS is still processing tax refunds for thousands of households that qualified for the American Rescue Plan tax exemption. Many people filed their tax returns before President Joe Biden signed the legislation, which means they overpaid on their tax return.
The IRS has identified more than 16 million such taxpayers who may qualify for a refund or have their overpayment applied to past due taxes or other debts. The agency issued tax refunds of about $14.5 billion to more than 11.8 million households as of December 28.