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Surprise tax bill for Americans who collected unemployment

If you collected unemployment during 2021 you may owe money to the IRS.

unemployment on newspaper

There is no tax break for unemployment benefits like there was in 2020.

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Who will be impacted?

The American Rescue plan was signed into law by Biden in March of 2021. It was meant to help struggling Americans during the pandemic. The bill waived taxes on up to $10,200 received in unemployment for those making less than $150,000 in 2020. That waiver is no longer in effect. Read more about it here.

Unemployment benefits are considered as taxable income this year and must be accounted for when you file.

If you collected unemployment, either standard or enhanced in 2021, you should’ve had the option to have federal taxes withheld upfront or to collect the benefit in full and pay later.

If you started working at some point during 2021 after collecting unemployment, it is all added together in your annual income.

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What if I can’t pay it all?

If you find that you can’t pay the entire tax bill by April 18, you’re not the only one. About 60% of Americans that claimed unemployment last year didn’t pay taxes on the money upfront.

Experts recommend paying whatever you can for state and federal taxes. Then, contact the IRS to sign up for an installment plan.

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