The recently passed third stimulus relief package, known as the American Rescue Plan, expands federal unemployment benefits and provides tax free unemployment benefits. If you received unemployment benefits, TurboTax is here to help you understand what all of this means and to help you get every dollar you deserve.
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Here is what you need to know:
The bill makes the first $10,200 of unemployment income tax-free for households with income less than $150,000. This provision would be retroactive to tax year 2020 (the taxes you file in 2021). If you have already filed your taxes, don’t worry, the IRS announced that they will automatically recalculate your return and send you any refund.
In addition, unemployment payments will increase by $300 per week, and the benefits will be extended through Sept. 6, 2021 for eligible individuals. And freelancers and side giggers will continue to be eligible for unemployment benefits with the extension of the Pandemic Unemployment Assistance (PUA).
How much are federal unemployment benefits under the third stimulus package?
The American Rescue Plan provides a $300 increase to federal unemployment payments until Sept. 6, 2021.
What do I need to do to claim the new unemployment relief?
If you’ve already filed your return, you should not do anything. The IRS will refigure your taxes and send any refund amount directly to you. We will update with more details as they become available.
If you have not filed your 2020 tax return, yet, the TurboTax product will guide you on how to claim these additional unemployment benefits.
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How do I know how much unemployment income I received?
When it’s time to file your taxes, you will receive Form 1099-G, which will show the amount of unemployment income you received. Form 1099-G will also show any federal taxes you had taken out of your unemployment pay.
What if I already filed my 2020 tax return?
If you have already filed your 2020 taxes, there is no need to do anything. The IRS announced that they will automatically refigure your taxes and adjust your return as needed. The IRS will send any refund amount directly to you. See the full details here.
Both my spouse and I received unemployment. Are we both eligible?
Under the American Rescue Plan, if you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200, if your modified adjusted gross income is less than $150,000.
If I received a subsidy to pay for 2020 health insurance, will I have to include my unemployment income and pay back the advance premium tax credit?
No, you will not have to pay it back. Due to the challenges involved in estimating 2020 income when applying for a subsidy, the American Rescue Plan temporarily waives the requirement for taxpayers to pay back excess advance premium tax credits in their 2020 taxes regardless of your income level. In addition, the first $10,200 of your income is tax-free under the American Rescue Plan.
We’ve Got You Covered
TurboTax has you covered with the most up-to-date information regarding new legislation and tax filing changes and announcements in response to Coronavirus (COVID-19). TurboTax has proactive guidance related to the events that occurred last year and will ask you simple questions about you and give you the tax deductions and credits you’re eligible for. If you have a simple tax return (1040 and no schedules), you may be able to file your federal and state taxes for free with TurboTax Free Edition.
You can find the latest information on the tax changes and announcements in response to COVID-19, here. Also check back with the Unemployment Center for tax tips, advice, and up to date information related to COVID-19 to help you with your taxes and finances in this time of need.