Tax rules changed significantly during the pandemic, leaving many taxpayers wondering whether certain temporary tax breaks could return.
In a recent NJ Money Help article, Howard Hook, CFP®, CPA, CAP®, addresses a reader’s question about whether unemployment benefits received in 2021 might receive the same tax treatment that applied to some benefits received in 2020.
In his response, Howard explains that Congress passed the American Rescue Plan Act in 2021, which allowed up to $10,200 of unemployment compensation received in 2020 to be excluded from federal income tax for eligible taxpayers. The exemption applied to individuals whose income, excluding unemployment benefits, was below $150,000.
However, Howard notes that unless future legislation changes the rules, unemployment compensation received in 2021 is fully subject to federal income tax.
He also points out that state taxation of unemployment benefits varies. For example, Howard explains that New York taxes unemployment compensation, while New Jersey does not.
Finally, Howard cautions that while Congress can make tax law changes retroactively, as it did with the 2020 unemployment exclusion, retroactive changes are not always favorable to taxpayers.
Read the original NJMoneyHelp article: I received unemployment in 2021. Will it be tax-free this time?
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