Unemployment income has always been taxable income. Those who apply for unemployment benefits can have federal tax, and any applicable state tax, withheld, but whether it’s done check by check or in a lump sum, the recipient has to pay.
However, because 2020 was such a difficult year, the federal government granted a limited break. It waived the federal tax on up to $10,200 of benefits per person for 2020 for those whose income was less than $150,000. Some states also provided income tax relief. But that federal break has expired. For those who received unemployment compensation in 2021, it’s back to business as usual: every dime is on the table for tax.
According to a CNBC Report, about 25 million people collected unemployment benefits in 2021, a significant decrease from the 40 million in 2020.
If you received unemployment compensation in 2021, be sure to discuss the details with a tax professional, as there may still be some state tax breaks.
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