Live in One of These 11 States? You Could Still Be Paying Taxes on Unemployment Benefits

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The coronavirus relief bill allowed for a $10,200 exemption from federal income tax on unemployment insurance payments to taxpayers who had less than $150,000 in modified adjusted gross income in 2020. Most states, but not all, followed suit.

See: How to Claim Your $10,200 Unemployment Tax Break If You Already Filed Taxes
Find: Millions of Americans Reaching End of Their Unemployment ‘Benefit Year’ Could Face Gaps in Extending Payments

CNN reports that if you live in one of the following states, your total payment will still be subject to state taxes:

  • Colorado
  • Georgia
  • Hawaii
  • Idaho
  • Kentucky
  • Minnesota
  • Mississippi
  • North Carolina
  • New York
  • Rhode Island
  • South Carolina

CNN adds that in Massachusetts, low-income unemployed persons are exempt from paying taxes on their 2020 benefits according to new legislation, unless household earnings are more than 200% above the federal poverty line.

See: How Do Your Stimulus Payments Affect Your Taxes?
Find: What Do You Need to File Taxes? A List of All the Documents to Have

Make Your Money Work

There are several reasons why some states aren’t offering the exclusion. According to CNBC, some states do not impose a personal income tax, and others exclude unemployment income from state tax altogether. It would be a moot point to exempt unemployment benefits in a state where there is no income tax, or income tax on unemployment, to begin with. And states like Indiana and Wisconsin already offer partial tax breaks on unemployment benefits.

It is important to check your individual state’s tax treatment for this year, as it is possible you might be able to deduct the taxes when filing next year. 

Since the relief bill was signed in March, it is possible you could have filed taxes early and paid taxes that were not necessary. The IRS will automatically adjust this, and send taxpayers any money owed, CNN reports. Follow up with your own records to make sure you have received the maximum amount.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 

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