You could get a second tax refund from the IRS if you received unemployment benefits in 2020 and paid taxes on it too. The American Rescue Plan, 2021 has benefits other than the stimulus check.
This extra money comes in the form of a new tax exemption worth $10,200 on your Unemployment benefits. And the IRS has kept things simple by making the exemption automatically sending out refunds on the tax paid in May.
You will get an automatic refund if you have filed your tax return before the changes in the unemployment laws were affected.
The number who filed for unemployment benefits in 2020 is staggering; 23 million as per records with the Bureau of Labor Statistics. Under the Cares Act of March 2020, the Pandemic Unemployment Assistance covers people who don’t normally come under unemployment insurance coverage, like contractors, gig workers, and self-employed people. Here is what we know so far about the unemployment income tax refund.
The Extension Of The Unemployment Benefits
The recipients of unemployment benefits are also eligible for a tax exemption of up to $10,200. But you need to file before the federal return before the May 17 deadline.
The unemployment benefits have at present been extended till September 6. The benefits were automatically renewed by most states for the recipient of unemployment insurance. But several unemployed workers had issues with the Benefit Year Ending date. The benefits are limited for a year at a time.
But the Rescue Plan has, because of the economic downturn, extended the unemployment insurance. But recipients have to file an extension or a fresh claim. So you need to get in touch with the labor department of your state if you have been on unemployment extending beyond a year.
The IRS has clear instructions on benefits from the tax waiver for unemployment insurance. So if you are filing your taxes, you need to know that your benefits are exempt for up to $10,200 of the funds. But the modified adjusted gross income should be below $150,000.
But you need not submit an amended return if you already have. The IRS will make fresh calculations before sending out the refunds for qualifiers once the exemptions are applied in May.
Who Gets The $300 Bonus Payment?
You qualify for an unemployment benefit from the state you live in if you have been furloughed or laid off. Furloughed is a period without work; a mandatory, unpaid leave of absence in most cases during the pandemic. It is an alternative to lay off because the workers are back when the economic conditions start to get better. It lasts for most cases at least a year. You get the payments once the state approves. But there is no single sum nationally as the state covers between 30% and 50% of a person’s wages.
What Is My Current Unemployment Benefit?
The $300 per week granted under the $1.9T under the COVID relief package has extended the unemployment benefits till September 6. This $300 every week is more than what you already get from the state. Though it is still less than the $300 per week under the CARES Act or the proposed federal bonus
So you get the unemployment benefits for 25 weeks starting March 14 till the end date declared, which is September 6. So it works out to $7,500 of federal payout above the regular amount paid by the state as unemployment benefits.
Why Is The $10,200 Income Tax Waiver Necessary?
Unemployment benefit is considered as income. Normally the state withholds taxes as it happens for other sources of income. But 10 million people are liable for tax payments as their taxes were not withheld by the IRS. So the waiver of $10,200 under the COVID-19 relief bill will benefit you as long as your income is below $150,000.
So if you received $25,000 as benefits last year, you will be liable to be taxed for only 14,800 ($25,000-10,200). Some states also allow waivers on state tax. As of now, the $300 bonus payments paid out weekly are not retroactive.
Details About The Tax Refund: One Of The Several Unemployment Benefits Under The ARP Passed In March 2021
The check automatically goes out if the IRS determines that you are owed a tax refund. But in what form and when do you receive the payment? And how do you track it?
There are some clarifications needed from the IRS about these new unemployment benefits in the form of a tax refund. Will it be a check or will you get the money as some other benefit? And how can you be sure that the amount is right once you receive your check?
The American Rescue Plan, 2021 has something for all including the $1,400 stimulus check, the $3,600 maximum child tax credit.
Am I Eligible For The Mixed Earner Unemployment Compensation
If you made more from a contract job or self-employment will be entitled to $100 extra each week.
If your income in 2019 was $50,000 from two different sources of income, say $20,000 from your part-time job and another $30,000 from a contract job, the state would calculate benefits only from a single source. So you either get the Pandemic Unemployment Assistance (PUA) or the unemployment insurance.
Someone who earned the same $50,000 from a regular job would now be entitled to $480 each week. But it is either $288 weekly under the Pandemic Unemployment Assistance or the $280 as unemployment benefit.
What After September 6? That Is When The Unemployment Benefit Ends
There is no likelihood of a further extension at present as the $1.9T bills have been passed.
Who Qualifies For The Added Federal Unemployment Insurance?
If you have lost a job or have been furloughed without a fault, you are eligible to apply for federal unemployment insurance.
But for now, it also includes workers who have refused to work for fear of contracting the virus. Workers will get the Pandemic Unemployment Assistance by the end-March.
The amount varies between states but is $300-$600. All details of the unemployment insurance can be found in the labor office of that state.
Rules Vary Between States
Barring a few, most states make available funding for 26 weeks. Delaware has extended it to 30 while Georgia has limited it to 12 weeks.
The 2020 CARES Act had added an extra 13 weeks with the Pandemic Emergency Unemployment Compensation. The federal govt. funded it. The 2021 COVID-16 relief act extended it by 11 weeks.
Mark Steber, Jackson Hewitts’ head tax officer, said that the new IRS clarifications can be possibly confusing. However, it will still be an immense help for a large number of taxpayers. As such, some taxpayers might question the payments’ timings and the form the payment will take. The IRS, therefore, is still in the process of providing further clarifications with regards to the recently announced program. As such, it is suggested to check in with a tax professional to make sure that the IRS has calculated everything properly, at the end.