TAX PROVISION

Unemployment Benefits

Using Tax Policy to Stimulate the Economy | March 2021

The ARPA extends the federal unemployment insurance assistance originally put in place under the CARES Act through September 6, 2021. It increases the total number of weeks of benefits available to individuals who cannot return to work safely from 50 to 79 and continues the federal supplement at the current level of $300 a week beginning March 14 and ending September 6, 2021.

The Senate adopted an amendment to the original House version of the ARPA providing that the first $10,200 of an individual’s unemployment income received in 2020 would be exempt from income tax. If married filing jointly, each spouse is allowed the $10,200 exemption for their individual unemployment compensation. The exemption does not apply if AGI exceeds $150,000.

It should be noted that the AGI limit is a cliff without any phase-out range and applies regardless of filing status. Similarly, any exemption amount in excess of actual unemployment compensation received by one spouse cannot be utilized by the other spouse. Taxpayers who have already filed their 2020 income tax returns do not need to file an amended return to claim this benefit. The IRS will refigure the tax liability of a taxpayer under this new provision and will issue additional refunds where appropriate.