In previous years unemployment income a taxpayer receives was considered taxable income, and in most cases it continues to be taxable. However, a recent change in the law allows some taxpayers to not pay taxes on their unemployment benefits.
According to this new law, taxpayers who earned less than $150,000 in their modified adjusted gross income can exclude some unemployment compensation from their total income, meaning they do not have to pay tax on it. Those who are married filing jointly can exclude up to $20,400 and all others who are eligible can exclude $10,200.
If you are eligible for this nontaxable unemployment compensation but already filed your tax return the IRS will automatically refund the money you are owed. These refunds are expected to be sent out starting in May and continuing to the summer. The IRS will do these calculations in two phases – those who are eligible to exclude $10,200 will receive their refund first, and then those married filing jointly will receive their $20,400 refund. You only need to file an amended return if the recalculations make you newly eligible for additional tax credits or deductions.
If you have not yet filed your tax return you should visit New Exclusion of up to $10,200 of Unemployment Compensation on the IRS website to see if you are eligible.
As always if you have any questions or concerns please reach out to our office!
