In 2020 the IRS helped citizens that collected unemployment benefits from paying federal taxes during 2021’s tax season.
However, unemployment benefitsdon’t apply as taxable income in today’s tax season.
Last year, approximately 25 million people collected unemployment benefits granted by the federal government.
Meanwhile, More than 40 million people obtained unemployment benefits in 2020. Nevertheless, Congress didn’t approve a similar tax break for 2021.
Tax season began on January 24, and the deadline is April 18 in the majority of states.
Congress could indeed pass legislation to help the taxpayers in their 2022 files. However, the solution is not viable for now.
The US economy is healing during the Biden Administration. The job market rebounded significantly since early 2021.
The national unemployment rate is 3.9%, which is the lowest figure since February 2020. Plus unemployment benefit claims decreased to pre-pandemic levels.
According to Mark Steber, chief tax information officer at Jackson Hewitt Tax Service, there’s a way to collect unemployment benefits in 2021 as taxable income.
However, there are some restrictions.
If a household didn’t realize that unemployment income was taxed, they could be hit with some sticker shock. With voluntary withholding, a flat 10% can be withheld on unemployment benefits, but that might not be enough to cover tax liability, especially if someone had income at the front end of the year and got reemployed, Steber said.
Iindividuals who did not withhold taxes from unemployment benefits may not receive as large of a refun, or probaby pay more put of pocket.