No, a tax break on 2021 unemployment advantages isn’t out there


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The tax season is getting closer – and recipients of unemployment benefits in 2021 do not seem to be getting any tax breaks as they were for 2020.

According to Andrew Stettner, Senior Fellow and Unemployment Expert at the Century Foundation, around 25 million people were receiving unemployment benefits in 2021.

Unemployment benefit is generally considered to be taxable income. The American Rescue Plan Act, an aid bill passed by the Democrats last March, approved a federal tax waiver of up to $ 10,200 in benefits per person for 2020. Many states also offered relief.

Households that qualified for federal exemption when their income (excluding benefits) was less than $ 150,000.

Congress has not passed a law to provide a similar tax break for 2021 and does not seem ready to do so.

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This means households that didn’t withhold federal tax (or withheld too little) from benefit payments may owe a tax bill this season or receive a smaller refund to make up the difference.

In 2020, the Covid-19 pandemic caused the US unemployment rate to rise to its highest level since the Great Depression. According to The Century Foundation, about 40 million people received benefits that year, each of which received an average of $ 14,000. However, taxes were withheld on less than 40% of payments, the group estimates.

The US economy and labor market have recovered significantly since then. Applications for unemployment benefits had dropped to pre-pandemic levels at the end of December, roughly four times lower than at the beginning of the year. Although there are still about 4 million fewer jobs compared to early 2020, the national unemployment rate of 4.2% is at its lowest level since February 2020.

The IRS is still processing tax refunds for thousands of households that have qualified for the American Rescue Plan tax break. Many people filed their tax returns before President Joe Biden signed the law, which means they overpaid their tax bills.

The agency has identified more than 16 million such taxpayers who may be eligible for a refund or whose overpayment will be offset against overdue taxes or other debts. As of December 28, the agency was granting tax refunds worth $ 14.5 billion to over 11.8 million households. The IRS will continue the process in 2022 and focus on more complex tax returns.

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