If you’re one of the millions of Americans who has dealt with unemployment in the past couple of years, you might be familiar with the 2020 tax refund on unemployment benefits.
Early in 2021, The American Rescue Plan put into effect a law that gave a tax break on up to $10,200 of unemployment benefits earned in 2020. In addition to stimulus checks, Child Tax credits, and other Covid relief aid efforts, this tax break was a welcome reprieve to those already battling unemployment issues.
Will the tax refund on unemployment benefits be in effect during the 2022 tax season?
At the time of writing this blog, there is no such unemployment tax refund planned for the 2022 tax season. That means that any unemployment compensation received through 2021 will be fully taxable when you file your 2021 taxes in 2022.
What do I need to know about unemployment taxes?
Here’s what you need to know about unemployment taxes, and some tips that may help.
- When it comes to federal taxes, Unemployment Benefits act like wages.
Unemployment benefits are subject to federal income tax in the same manner as employed wages.
- Taxes on Unemployment vary state to state.
Depending on the state you live in, your state income tax may fully or partially tax unemployment – or it may not tax unemployment at all. To find out where your state stands, visit this Department of Labor page.
- You can elect to have 10% of benefits withheld for tax liability
If you haven’t already – and if you can afford to – you can complete a Form W-4 V and hand it in to the agency that pays your benefits. This will help with any potential surprises come tax time.
Check out the Department of Labor to learn more about unemployment taxes, and reach out to us at World Finance to get started on your tax filing. Planning ahead – and starting early – is your greatest strength when it comes to bracing for tax season.
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