Tax season is here. Unlike last year, unemployment benefits won’t count towards your refund. In fact, you may end up owing money to the IRS or getting a smaller refund. This is because unemployment benefits count as taxable income. So, if you didn’t have enough or any money withheld from your payments, be on the lookout for that.
In 2020, the American Rescue Plan Act waived federal tax for up to $10,200 of unemployment benefits. This pandemic relief law was applied per person. Households qualified for the waiver, too, if their income was less than $150,000. This did not include any benefits that households had gotten.
However, Congress did not pass a similar tax break law for 2021. This could potentially be a surprise situation for taxpayers that thought the tax break carried over into 2021. Last year, around 25 million people in the US collected unemployment benefits, according to Andrew Stettner. Stettner is an unemployment expert at The Century Foundation. The Century Foundation stated that in 2020, around 40 million people collected unemployment benefits. On average, people collected $14,000. Less than 40% of payments had any taxes withheld.
Unemployment Benefits Probably Won’t Get a Tax Break, As US Economy Starts to Recover
Tax season runs from January 24 to April 18. Even though there haven’t been any tax break laws passed by Congress this year, it could still happen. That’s exactly what happened last year with the American Rescue Plan Act. The tax break law was passed in March. Since then, tax refunds have been issued for people that filed their taxes before the law was passed.
Even though it’s within the realm of possibility, it seems unlikely that Congress will pass any tax laws this year. Even though coronavirus has been surging through the US, the economy and job market have more or less recovered from 2020 lows. In fact, unemployment claims officially fell below pre-pandemic levels at the end of December 2021. CNBC reports that the national unemployment rate is 3.9%. That’s the lowest number since February 2020.
Of course, the economy and employment levels haven’t fully recovered yet. Employment levels are still 3.6 million jobs below pre-pandemic levels. Around 2.3 million people have left the workforce. Plus, as the omicron variant continues to spread, more and more people are calling out and getting laid off.
How to Get Your Tax Refund Faster
The easiest and fastest way to get your tax refund squared away is to file electronically. If you do this and set up direct deposit, you should get your refund within 21 days. You also need to double-check all of your forms. Any errors could cause your refund to get delayed. Millions of people still haven’t gotten their 2020 refunds because of errors or other preventable mistakes. Make sure you’ve got all of the paperwork you need, that your information is correct, and that you submit it quickly.