Unemployment Has Changed Forever
The latest stimulus package, known as the American Rescue Plan Act of 2021 (ARPA), injected $1.9 trillion into the US economy. This relief spending has been divided into various categories, including $410 billion for stimulus checks, $360 billion for state and local governments, $130 billion to help schools safely reopen, and $122 billion for COVID-19 testing, tracing, and vaccine distribution.
Another big chunk of the $1.9 trillion stimulus package—$250 billion, to be exact—is allocated for unemployment benefits. The CARES Act, which passed in March 2020, expanded unemployment benefits through December 31, 2020. Now, those expanded benefits extend through September 6, 2021. Here’s what you need to know.
Supplemental Unemployment Benefits
The ARPA adds an extra $300 per week to the baseline employment benefits received from the state for 53 weeks, up from 24 weeks. In Florida, unemployment pays just under $300 per week. With the federal supplement, unemployed Floridians can earn nearly $600 per week. The biggest problem with this is that it incentivizes workers who make roughly $12 to $15 per hour to accept unemployment instead of looking for a job.
Tax-Exempt Unemployment Benefits
The first $10,200 per person of unemployment benefits received in 2020 is exempt from income taxes—assuming your income is less than $150,000. This gives low- to moderate-wage workers yet another reason to remain unemployed, which could really hamper our country’s economic recovery.
The real kicker is that the government added this significant taxation provision in the middle of tax season! It affects a source of income that millions of Americans received last year, many for the first time ever. A significant portion of these people have already filed their income tax returns and paid taxes on the unemployment benefits they received in 2020.
Now, the only option is to wait, but the IRS has not provided instructions on how to proceed. In fact, the only guidance taxpayers have received so far is not to amend their returns just yet.
Other Tax Changes
In addition to newly tax-exempt unemployment benefits, the ARPA has allocated $143 billion toward three expanded tax credits for 2020:
The child tax credit has increased to $3,000 for children age 6 and older, and $3,600 for younger children, regardless of earned income.
The child and dependent care tax credit increased to $8,000 for one child and $16,000 for multiple kids.
The earned income tax credit was expanded for low- to moderate-income workers with qualifying children.
These tax credits are fully refundable, meaning that even qualified individuals who don’t owe taxes get money back when they file their return.
For answers to your remaining questions about tax-exempt unemployment benefits and other tax implications for 2020, please reach out to Nelson Financial Planning. Our team can fill you in on all the rules so you know what benefits apply to you. Contact us today at 407-629-6477 to schedule your free initial consultation.