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Americans won't pay 2020 income tax on up to $10,200 of unemployment funds

Erin Arvedlund, The Philadelphia Inquirer on

Published in Home and Consumer News

If you got unemployment during 2020, you might expect Uncle Sam to ask for some federal taxes.

Not so this year.

The Internal Revenue Service issued instructions that up to $10,200 of unemployment benefits won't be taxed. That's because the Biden Administration's $1.9 trillion American Rescue Plan excluded that sum for the 2020 tax year.

This tax season is shaping up to be bizarre. The final rules are still in flux. Accountants lack all the answers. And even some commercial filing software hasn't been fully updated.

Take those who already filed returns, and included tax payments for unemployment. The IRS is advising those taxpayers not to do anything yet until they have updated the rules.

It could take the federal government tax agency 30 to 45 days to reprogram computer systems to account for the American Rescue Plan.

 

That adds a new level of complexity to taxes, said Philadelphia accountant Steve Ramm.

Consider waiting until tax software has been updated and the IRS website too, he advised.

There's even talk of extending the April 15 tax deadline this year, as was done in 2020.

Unemployment benefits have been taxable since the 1980s. However, the explosion of pandemic-era unemployment, plus with the arrival of the new stimulus bill, have created a massive tax mash-up for Americans in 2020.

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