What you Need to Know About Unemployment Compensation
By Alex Smith, CPA
If you received unemployment compensation in 2021, you are not alone. It is estimated that over 20 million Americans collected unemployment compensation during 2021 and the tax rules for unemployment have changed again.
Except for during 2020, 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 is done by check or in a lump sum, the recipient must 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.
The federal break has expired and for those who received unemployment compensation in 2021, it is back to business as usual: every dime is on the table for tax. If you received unemployment compensation in 2021, be sure to discuss the details with one of our tax professionals, as there may still be some state tax breaks.