In 2020 taxpayers collecting unemployment were lucky enough to not pay taxes on the first $10,200. In 2021, they need to pay taxes to the IRS on their benefits.
This move was made under the American Rescue Act when President Joe Biden tried helping Americans suffering financially from the pandemic.
While is was a nice break during the 2021 tax season, that will not be happening during the 2022 tax season.
25 million people were collecting unemployment in 2021, compared to 40 million in 2020.
While Congress could always pass a law to change this, that does not look like it’s going to happen this year.
Taxpayers have from Jan. 24 through April 18 to file their 2021 tax return.
In early 2021 unemployment rates began to drop as people started going back to work.
Since Feb. 2020, the unemployment rate has reached its lowest point at 3.9%.
Unemployment claims are now less than what they were before the pandemic.
How to collect unemployment benefits as taxable income
While it is possible to collect benefits as taxable income, there are some restrictions, according to Marca.
When a household did not realized that unemployment is taxed, they’ll be surprised by a larger tax bill.
Voluntary withholding will take 10% of your unemployment benefits, but it’s probably not enough to cover the taxes you owe.
This is especially true for those who had income at the beginning and end of the year.
If you didn’t withhold taxes then you will likely see a smaller refund or a tax bill.
Your 1099-G form will have all the details to file your taxes for unemployment benefits.