A Tax Update on Third Stimulus and Unemployment: Your Questions Answered
March 22, 2021
by Radha Seshagiri
We know that many of you have burning questions about unemployment benefits and the American Rescue Plan, including how they affect taxes and what is the relationship between the third stimulus and unemployment benefits. Here are answers to some of the questions you’ve asked about the third stimulus, unemployment extension, and their tax implications.
How Do Your Unemployment Benefits Relate to the Stimulus Package?
If you lost your job during the pandemic, the American Rescue Plan extends certain pandemic-related programs through September 6, 2021. Here are some of the ways that you could benefit.
- Federal unemployment benefits (FPUC), at $300 per week, on top of state benefits.
- If you have exhausted state unemployment benefits, Pandemic Emergency Unemployment Compensation (PEUC) will be extended to 53 weeks. These are for the “long-term unemployed” who were initially eligible for state benefits but exhausted them before finding employment.
- If you are typically ineligible for state unemployment benefits, the Pandemic Unemployment Assistance (PUA) program will be extended to 79 weeks (up to 86 weeks in some states). You may be eligible for PUA if you lost work for specific COVID-related reasons but are ineligible for normal state benefits. This includes self-employed people and gig workers.
- If you earned both self-employment income and other wages, you might be eligible for an additional $100 per week from the Mixed Earners Unemployment Compensation (MEUC) program.
For more details about all of these programs, check out this guide from The Century Foundation.
I Heard There’s a $10,200 Tax Break for Unemployment Payments. What Does That Mean, and Should I File an Amended Return?
If you received unemployment income in 2020, the first $10,200 will not be taxable. After that amount, unemployment is considered taxable income. For married couples who file jointly, the first $20,400 of unemployment income received in 2020 is non-taxable.
Tip: Find out more about who qualifies for this tax break.
Note that this only applies to federal taxes. States have their own rules around tax breaks. You’ll need to ask a tax preparer for help or look into your state’s rules around tax breaks and unemployment income.
If you’ve already filed your taxes for 2020, you don’t need to file an amended return just yet. Wait for more information from the IRS.
I Think I Already Paid Taxes on My Unemployment Payments. Did I?
It’s entirely possible. States are required to offer you the option to withhold taxes from your check, just as an employer would. If you chose to do so, you should have had 10% withheld from each payment.
If you did not choose to have taxes withheld and would like to start, you can do so at the IRS site. A tax preparer can also help you determine if you overpaid these taxes and how to claim a refund.
What Should I Do Now?
The most important thing to know is that you should file your taxes. The national tax deadline was recently extended to May 17, which gives you an extra month — and for Texas and Oklahoma residents, the deadline is pushed back to June 15.
When you file your taxes, you’ll need to fill out the section on unemployment benefits and use Form 1099-G. Whichever state agency paid your unemployment benefits should issue you a 1099-G form for any payments you received in 2020. On the form, Box 1 is for how much you received, and Box 4 is for how much tax was taken out of those payments if any.
Do I Have to Pay State Taxes on Unemployment?
It depends on which state you live in. In some states, unemployment benefits are tax-exempt. Check with your state tax agency or your tax preparer for more information.
Are Stimulus Checks Taxable?
You don’t have to pay taxes on your stimulus check! As with the last two, the intention behind the third stimulus check is to support Americans during this difficult time.
Tip: If you need extra help with your taxes this year, the IRS has made a free resource available to anyone: visit the Taxpayer Advocate Service for more information.
Tip: Here are some tips on how to budget while you’re on unemployment.
We’ve also made a cheat sheet with some great resources we recommend to help you navigate your 2020 taxes, including all of the ways you can file for free.
Note: Share your experience! If you run into any questions or are unsure whether you need to file, connect with other SaverLife members in the forum.
Don’t wait to file and claim the money you’re due! This may also be a good time to consider establishing savings habits to create a financial buffer for you and your family. At SaverLife, our mission is to make saving money easier and more rewarding. Sign up today!