On March 11, 2021 President Biden signed into Law a $1.9 Trillion Bill, that includes but is not limited to:
An extention of the enhanced $300.00 weekly unemployment relief that was first made available in the early pandemic relief bills. The extension was orginally set to expire this month (March 2021), however said unemployment relief will run through early September of 2021 under this new Act, but with some changes. The most notable change for tax purposes, now makes the first $10,200 of unemployment relief received in 2020 exempt from taxes for households with less that $150,000.00 of income.
Example: If a person received unemployment in 2020 in the amount of $16,000.00 the tax on said amount, prior to this Act, was $1,600.00, however now that the Act has been signed into law, lowers the tax of said amount to $580.00. (Yes, that means an extra $1,020.00 for that person, as the first $10,200.00 is now exempt from taxes)
If you earned less than $150,000.00 and received unemployment in 2020 and would like to calculate your savings due to said exemption, use 1 of these following 2 formulas, based on your situation:
If you had unemployment taxes withheld from your unemployment compensation, use the following formula:
1. Subtract $10,200.00 from the Unemployment you received.
2. Multiply the amount from step 1 by 10%.
3. Then Subtract the amount from step 2, from the amount of Federal Taxes you had withheld from your Unemployment; this is the amount you are due to have refunded back to you.
If you didn't have unemployment taxes withheld from your unemployment compensation, you will first have to calculate what your unemployment taxes were suppose to be and then use the following formula:
1. Multiply the amount of unemployment compensation you received by 10%.
2. Then subtract $10,200.00 from the amount of unemployment compensation you received.
3. Then muliply the amount from step 2 above by 10%.
4. Then subtract the amount from step 3 above from the amount calculated in step 1; this is the amount you are due to have refunded back to you.
*At this moment (the writing of this BLOG), it is unclear as to how the Internal Revenue Service will handle said changes as for the treatment of Unemployment Compensation for individuals who received Unemployment Compensation in 2020 and have already filed their TY (Tax Year) 2020 returns. The IRS can choose to automatically refund taxpayers and/or require taxpayers to amend their 2020 TY returns, or any other options they may deem feasible.