Under the American Rescue Plan, those who received federal unemployment benefits in 2020 will receive a $10,200 tax break when they file a federal income tax return this year.
However, in 13 states, taxpayers won’t find the revenue department so generous.
In those states, the $10,200 exclusion will not be recognized. In other words, those who received federal unemployment benefits will not get to take the first $10,200 of benefits off their state returns when they figure out what they may owe in taxes.
In regards to taxes, unemployment benefits are generally treated as income. What the American Rescue Plan does is exempt the first $10,200 of federal unemployment benefits from your taxable income. You will be taxed at the regular rate for any federal unemployment benefits above $10,200.
You can take the tax break if you have an adjusted gross income of less than $150,000.
For filing state taxes, some states do not recognize the $10,200 federal tax break.
If you live in Colorado, Georgia, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, North Carolina, New York, Rhode Island, South Carolina or West Virginia, you cannot use the $10,200 exemption on your state tax bill, according to H&R Block, a nationwide tax preparation business.
In those states, you must include the full amount of the federal unemployment benefits you received as income.
Other states have said they will agree to the $10,200 exemption for state income tax bills.
Connecticut, Iowa, Illinois, Kansas, Louisiana, Maine, Michigan, Missouri, North Dakota, Nebraska, New Mexico, Oklahoma, Oregon, Utah and Washington, D.C., have all said they will honor the $10,200 tax exemption.
According to CNBC, other states are offering tax forms that allow eligible taxpayers to claim the break, while others are still deciding what to do as the May 17 deadline draws near.
According to the Bureau of Labor Statistics, 40 million Americans received unemployment benefits last year. The average amount an individual received was around $14,000 for the year.
You can find your state’s unemployment tax information by clicking here.