The Unemployment Tax Break, part of the CARES Act, temporarily waives federal income taxes on unemployment benefits received in 2020. To calculate the amount you’ll get back, determine your filing status, income, and the amount of unemployment benefits you received. If you earned less than $150,000 as a single filer or $300,000 as a married couple, you’re eligible for the full break. However, if you received unemployment benefits that exceed the first $10,200 of your income, you’ll only get a partial break. The amount you get back varies based on your circumstances and the amount of taxes you owe. You can use an online calculator or consult a tax professional for an accurate estimate.
Eligibility Criteria for Unemployment Tax Break
To qualify for the unemployment tax break, you must meet the following criteria:
- You must have been unemployed and received unemployment benefits in 2020.
- Your modified adjusted gross income (MAGI) must be below $150,000 for single filers or $300,000 for married couples filing jointly.
If you meet these criteria, you may be eligible to claim up to $10,200 in tax-free unemployment benefits. The exact amount you will receive back will depend on your MAGI and the amount of unemployment benefits you received.
The table below shows the maximum amount of tax-free unemployment benefits you can claim based on your MAGI:
| MAGI | Maximum Tax-Free Unemployment Benefits |
|---|---|
| $0 – $15,000 | $10,200 |
| $15,001 – $30,000 | $10,200 – (5% x (MAGI – $15,000)) |
| $30,001 – $100,000 | $5,100 – (2% x (MAGI – $30,000)) |
| $100,001 – $150,000 | (2% x MAGI) – $250 |
| $150,001 – $300,000 | (1% x MAGI) – $500 |
Calculation of Tax Refund
The American Rescue Plan Act of 2021 provided a temporary tax break for unemployment benefits received in 2020. Up to $10,200 of unemployment compensation is not subject to federal income tax for individuals with an adjusted gross income (AGI) of less than $150,000 ($75,000 for married filing separately).
To calculate your potential tax refund, follow these steps:
- Determine your AGI: This is your total income minus certain deductions and adjustments. You can find your AGI on line 8b of your 2020 Form 1040 tax return.
- Check if you qualify for the tax break: If your AGI is below the threshold mentioned above ($150,000/$75,000), you qualify for the tax break.
- Calculate the amount of untaxed unemployment compensation: Up to $10,200 of your unemployment benefits received in 2020 can be excluded from federal income tax.
- Determine the tax savings: Multiply the amount of untaxed compensation by your applicable tax bracket. The tax brackets for 2020 are as follows:
- 10% for AGI up to $9,875 ($19,750 for married filing jointly)
- 12% for AGI between $9,876 – $40,125 ($19,751 – $80,250 for married filing jointly)
- 22% for AGI between $40,126 – $85,525 ($80,251 – $171,050 for married filing jointly)
- 24% for AGI between $85,526 – $163,300 ($171,051 – $326,600 for married filing jointly)
- 32% for AGI between $163,301 – $207,350 ($326,601 – $414,700 for married filing jointly)
- 35% for AGI between $207,351 – $518,400 ($414,701 – $1,036,800 for married filing jointly)
- 37% for AGI over $518,400 ($1,036,801 for married filing jointly)
- Calculate your refund: If the tax savings exceed the taxes you paid on your other income, you will receive a refund. The amount of the refund will depend on the amount of taxes you paid.
| AGI Range | Tax Bracket | Tax Savings (10% Bracket) |
|---|---|---|
| $0 – $9,875 | 10% | $1,020 |
| $9,876 – $40,125 | 12% | $1,224 |
| $40,126 – $85,525 | 22% | $2,244 |
| $85,526 – $163,300 | 24% | $2,448 |
Note that these are only estimates, and your actual refund may vary. You should consult with a tax professional for personalized advice.
The Unemployment Tax Break
The American Rescue Plan Act of 2021, signed into law by President Biden on March 11, 2021, included a temporary tax break for unemployment compensation. This provision exempted the first $10,200 of unemployment benefits received in 2020 from federal income tax for individuals with modified adjusted gross incomes (MAGIs) below certain thresholds.
The thresholds for the tax break varied by filing status. For single filers, the threshold was $150,000. For married couples filing jointly, the threshold was $300,000. For heads of household, the threshold was $200,000.
The tax break was not automatic. Taxpayers who received unemployment benefits in 2020 had to claim it on their 2020 tax returns. The IRS issued guidance on how to claim the tax break in May 2021.
The tax break was a significant benefit for many Americans who lost their jobs during the COVID-19 pandemic. It helped to offset the financial hardship caused by job loss and provided a boost to the economy.
State-Specific Unemployment Tax Breaks
In addition to the federal tax break, some states also provided their own unemployment tax breaks. These state-specific tax breaks varied widely. Some states exempted all unemployment benefits from state income tax, while others only exempted a portion of benefits. Some states also provided a tax credit for unemployment benefits.
The following table provides a summary of the state-specific unemployment tax breaks that were available in 2020:
| State | Tax Break |
|---|---|
| Alabama | No state income tax |
| Alaska | No state income tax |
| Arizona | Exemption for the first $10,000 of unemployment benefits |
| Arkansas | No state income tax |
| California | Exemption for the first $10,200 of unemployment benefits |
| Colorado | Exemption for the first $20,000 of unemployment benefits |
| Connecticut | Exemption for the first $10,200 of unemployment benefits |
| Delaware | No state income tax |
| District of Columbia | Exemption for the first $10,000 of unemployment benefits |
| Florida | No state income tax |
| Georgia | No state income tax |
| Hawaii | Exemption for the first $10,200 of unemployment benefits |
| Idaho | No state income tax |
| Illinois | Exemption for the first $10,200 of unemployment benefits |
| Indiana | Exemption for the first $10,200 of unemployment benefits |
| Iowa | No state income tax |
| Kansas | No state income tax |
| Kentucky | Exemption for the first $10,000 of unemployment benefits |
| Louisiana | No state income tax |
| Maine | Exemption for the first $10,000 of unemployment benefits |
| Maryland | Exemption for the first $10,200 of unemployment benefits |
| Massachusetts | Exemption for the first $10,200 of unemployment benefits |
| Michigan | Exemption for the first $10,200 of unemployment benefits |
| Minnesota | Exemption for the first $10,200 of unemployment benefits |
| Mississippi | No state income tax |
| Missouri | No state income tax |
| Montana | No state income tax |
| Nebraska | No state income tax |
| Nevada | No state income tax |
| New Hampshire | No state income tax |
| New Jersey | Exemption for the first $10,200 of unemployment benefits |
| New Mexico | Exemption for the first $10,000 of unemployment benefits |
| New York | Exemption for the first $10,200 of unemployment benefits |
| North Carolina | No state income tax |
| North Dakota | No state income tax |
| Ohio | Exemption for the first $10,200 of unemployment benefits |
| Oklahoma | No state income tax |
| Oregon | Exemption for the first $10,200 of unemployment benefits |
| Pennsylvania | No state income tax |
| Rhode Island | Exemption for the first $10,200 of unemployment benefits |
| South Carolina | No state income tax |
| South Dakota | No state income tax |
| Tennessee | No state income tax |
| Texas | No state income tax |
| Utah | No state income tax |
| Vermont | Exemption for the first $10,200 of unemployment benefits |
| Virginia | Exemption for the first $10,000 of unemployment benefits |
| Washington | No state income tax |
| West Virginia | No state income tax |
| Wisconsin | Exemption for the first $10,200 of unemployment benefits |
| Wyoming | No state income tax |
Timeline for Receiving Refund
The timeline for receiving your refund from the unemployment tax break will vary depending on when you filed your tax return and how you chose to receive your refund. Here is a general timeline:
- If you filed your tax return by April 15, 2021, and chose to receive your refund by direct deposit, you should receive your refund within 21 days.
- If you filed your tax return by April 15, 2021, and chose to receive your refund by check, you should receive your refund within 45 days.
- If you filed your tax return after April 15, 2021, the timeline for receiving your refund may be longer.
You can check the status of your refund by visiting the IRS website at https://www.irs.gov/refunds.
If you have any questions about the unemployment tax break, you can contact the IRS at 1-800-829-1040.
Did Unemployment Benefits Affect My Refund?
The unemployment tax break may have affected your refund in the following ways:
- If you received unemployment benefits in 2020, you may have overpaid taxes on those benefits. This is because unemployment benefits are typically subject to federal income tax. However, for 2020, the first $10,200 of unemployment benefits received was not subject to federal income tax.
- If you received unemployment benefits in 2020, you may have been eligible for the Recovery Rebate Credit. This credit was a one-time payment of up to $1,200 for individuals and $2,400 for married couples filing jointly.
If you believe that the unemployment tax break has affected your refund, you should check the status of your refund by visiting the IRS website at https://www.irs.gov/refunds.
How Can I Track My Refund?
You can track the status of your refund by visiting the IRS website at https://www.irs.gov/refunds.
You will need to provide your Social Security number, date of birth, and zip code.
The IRS website will show you the status of your refund, as well as the date that your refund is scheduled to be deposited into your bank account or mailed to you.
How Can I Contact the IRS?
If you have any questions about the unemployment tax break, you can contact the IRS at 1-800-829-1040.
The IRS is available to answer your questions Monday through Friday, from 7:00 AM to 7:00 PM Eastern Time.
**How Will I Get Back From Unemployment Tax?**
Hey there, tax filer!
If you’re wondering how you’ll get back from that unemployment tax you paid, I’ve got you covered. It’s not always a walk in the park, but it’s definitely doable.
* **File your taxes early.** The sooner you file, the sooner you can get your refund.
* **Make sure you claim all your deductions and credits.** This will help reduce your tax liability and increase your refund.
* **Consider using a tax preparer.** If you’re not comfortable doing your taxes yourself, a tax preparer can help you find all the deductions and credits you’re eligible for.
* **Don’t give up!** Getting back from unemployment tax can take some time, but it’s definitely worth it.
Thanks for reading! I hope this article has been helpful. Be sure to check back later for more tax tips and advice.