Under normal circumstances, income from unemployment insurance is treated as income from a paycheck and subject to federal tax and state taxes where it applies. Unemployment income is also typically considered taxable income and is reported on your tax return as such — from there it depends on your particular state what tax treatment comes along with it.
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Pandemic-era relief laws have changed this temporarily. As of March 11, 2021, under the American Rescue Plan, the first $10,200 in unemployment benefits collected in the tax year 2020 were not subject to federal tax. In order to have qualified for the exclusion, you needed a modified adjusted gross income of less than $150,000. This limit included benefits plus any other sources of income. The exclusion was claimed when filing 2020 taxes during 2021.
If you collected any unemployment benefits in 2021 that were meant for 2020, meaning any late accrued payments, you will need to include this on your 2021 tax return during the 2022 filing season.
Unfortunately, the unemployment income federal tax exemption does not include unemployment income for 2021. This means the only way to still take advantage of the benefit is if you were paid any 2020 unemployment money late, and the payment came to you in 2021 instead of 2020. In this case, you will claim it on your 2021 tax return in 2022, and label it as unemployment income from 2020.
In order to do this, you should receive a Form 1099-G from your state or the entity paying your unemployment benefits early next year. Full amounts will appear in Box 1 of the form. When you’re ready to file your taxes for 2021, you will write the amount stated in box 1 of your Form 1099-G on line 7 of Schedule 1. You will need to file Schedule 1 with your tax return.
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