The start of tax season has finally arrived. In addition, people who received unemployment benefits in 2021 may be in for a rude awakening in the following year. However, unlike the previous year’s tax season, there is no such cut available this year for those receiving unemployment benefits from the federal government.
Because unemployment benefits are considered taxable income, beneficiaries who did not have tax withheld from their unemployment payments (or did not have enough tax withheld) in 2021 may owe money to the IRS or get a lesser tax refund than anticipated.
The percentage change in overall employment in the United States from pre-pandemic levels in February 2020.
The American Rescue Plan Act, a pandemic relief bill, exempted unemployment benefits from paying federal income taxes on up to $10,200 in benefits per person in 2020, a year in which the jobless rate skyrocketed to levels not seen since the Great Depression.
Households were eligible for the federal waiver if their total income (after deduction of benefits) was less than $150,000.
However, Congress has not authorized a comparable tax deduction for benefits beginning in 2021, which may cause people to be surprised when they submit their income tax returns. This year’s tax season begins on January 24 and continues through April 18.
According to Andrew Stettner, a senior fellow and unemployment specialist at The Century Foundation, around 25 million individuals received unemployment benefits in the United States last year.
The unemployment rate in the United States
According to The Century Foundation, around 40 million individuals will get benefits in 2020, each receiving an average of $14,000 in compensation. Nevertheless, the organization calculated that fewer than 40% of payments were subject to tax withholding.
Without a doubt, Congress may enact legislation during tax season to provide a tax credit to the unemployed.
For example, Democrats approved the American Rescue Plan Act in March of last year. The IRS had already paid retroactive tax refunds to millions of taxpayers who had submitted their forms before the policy was signed into law.
However, legislators do not seem to be prepared to grant another extension.
Since the beginning of 2021, the economy and employment market in the United States has seen substantial growth.
At the end of December, claims for unemployment benefits had returned to levels seen before the epidemic. It is the country’s lowest unemployment level since February 2020, with the national jobless rate at 3.9 percent.
However, that is not to argue that the job market has completely recovered. Employment remains 3.6 million jobs below its pre-pandemic level, and roughly 2.3 million individuals have dropped out of the labor market since the outbreak.