At the height of the pandemic-fueled “lockdown,” unemployment reached an unprecedented 14.4%. That equated to over 20 million people, some temporarily and others permanently, losing their jobs. The majority of whom applied for unemployment benefits.
Though public health concerns still linger and various restrictions remain in place, most businesses that weathered the storm have returned to operation.
And in turn, unemployment has dropped nationally to under 6% (though that figure hovers close to 8% in California).
Yet unemployment remains uncomfortably high in certain sectors. Most notably, unemployment in hospitality and leisure (which includes hotels, restaurants, bars, music venues, and other public gathering-oriented enterprises) is still at nearly 10%.
All of which means a sizable chunk of people, especially in California, are still out of work. And most Federally-funded pandemic unemployment programs are set to end in early September.
The silver line here is, regardless of which sector you happened to be employed in if you received unemployment benefits in 2020, there’s a good chance you can expect an income tax refund on a portion of those benefits.
9 Million Unemployment Tax Refunds Issued (And Counting!)
The American Rescue Plan Act, signed into law in March, included provisions for up to $10 billion in various income tax refunds.
And one of those provisions is a refund on a portion of income taxes levied on unemployment benefits.
If you received unemployment benefits, you can expect up to receive a refund for taxes paid on up to $10,200 on those benefits. The refund, however, only applies to those who earned less than $150,000 in 2020 (whether as an individual or married couple filing jointly).
Another 1.5 Million Unemployment Tax Refunds Still On The Way
The IRS began issuing refund checks in May. And many folks were left wondering, “what’s the unexpected check from the government all about!?” So, you may have already received your refund.
But if you qualify under the terms outlined above but have yet to receive a refund check, don’t fret. It’s on the way!
A Few Reoccurring Questions Have Come Up In Response To The Unemployment Tax Refund…
Several clients have repeatedly asked the same questions, so here’s a quick FAQ to shed some light on the situation:
1. Why did I just receive a several thousand dollar check from the US Treasury?
Of course, this is the refund payment. And you’re entitled to the funds because you received unemployment benefits and earned less than $150,000 in 2020.
2. Why didn’t I receive a refund for $10,200?
This has been a hugely confusing point for many taxpayers. You’ve not entitled to a refund of $10,200. You’re entitled to a refund on the portion of income taxes you paid on up to $10,200 of your unemployment benefits.
So, if you received $20,000 in unemployment benefits in 2020, you are only responsible for paying income taxes on $9,800 of those benefits. And in turn, you will receive a refund for the taxes you paid on the other $10,200.
3. Should I report the refund on my 2021 income taxes?
As far as your federal income taxes go, the answer is no. This payment is purely a refund from the federal government. But this may not be true for state income taxes, as regulations vary by state. Ultimately, it’s best to consult with a qualified tax professional.
4. Will there be a refund on 2021 unemployment benefits?
At this point, the answer is no. Things could change. But the political climate appears to be trending toward reducing benefits in a general effort to promote the “return to normal” narrative.
Have Questions About Taxes on Your Unemployment Benefits?
If you are currently receiving unemployment benefits or did receive unemployment benefits in 2021, a “mid-year tax check-up” is a smart idea.
A review and assessment will give you a clearer picture of where you stand now and what your tax position will look like at year’s end.
And I can help! Get in touch for a FREE consultation!