The $1.9 trillion coronavirus stimulus plan that President Biden signed into law in March, known as the American Rescue Plan, waives federal income taxes on up to $10,200 in 2020 unemployment insurance benefits for individuals who earn less than $150,000 a year.
Workers can exclude the aid when calculating their modified adjusted gross income — meaning that an individual who earned $140,000 last year but collected $10,200 in jobless aid is still eligible to take advantage of the tax break. The break applies to this tax-filing season, which began Feb. 12 and ends May 17.
Filers who earn less than $150,000 – whether they're single or married – are eligible to take advantage of the tax break. For married couples, each spouse can exclude up to $10,200 of their benefits, meaning their joint taxable income would be reduced by a maximum of $20,400. Any amount over $10,200 for individuals is still taxable.
The IRS announced last month that Americans who had filed their taxes before Biden signed the stimulus bill will not have to file an amended return in order to claim the benefit.
The agency said it will do the recalculation in two phases, beginning with taxpayers who are eligible for the $10,200 exclusion. It will then proceed to calculate the new refund for married couples who are eligible for the $20,400 exclusion and other more complex returns.
"There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return," the agency said.
The federal government and most states count unemployment benefits, including the extra money distributed through federal aid programs, as taxable income. Unlike a typical paycheck, taxes aren't automatically deducted from jobless aid. Those collecting unemployment need to opt in to have taxes taken out.
About 40 million people collected jobless aid last year, according to The Century Foundation. The average person received $14,000 in benefits.
But 13 states will not offer that benefit to out-of-work Americans, according to recent data published by tax preparer H&R Block. The states are: Colorado, Georgia, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, North Carolina, New York, Rhode Island, South Carolina and West Virginia.