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Tax for unemployment benefits

Published February 03, 2022

Have you collected your unemployment benefits last year? Then you would be required to file your federal income tax returns on the jobless benefits. You may be confused about the rules tax filing, learn the whole process and other latest information that can be valuable

Federal income tax & unemployment compensation

Unemployment benefits are monetary assistance provided by the state and federal government. These benefits are typically funded through taxes paid by the employers at the state and federal levels. It is only for people who lose their jobs through none of their faults.

A taxpayer who wants to receive unemployment benefits can apply through the state programs. The amount of compensation will depend on the earnings, work timings, and state allowance of the applicant.

The IRS considers these benefits a taxable income that the applicants must report on the federal tax return. During the year, people who receive unemployment benefits are also provided with an IRS Form 1099-G by the State unemployment divisions.

To know more about unemployment benefits and taxes, read this article. Here, we have mentioned the latest information that can be valuable.

How is unemployment income taxed?

Generally, the unemployment income is taxable and included in the annual income. However, some changes have been seen under the third stimulus or American Rescue Plan. Now, the first $10200 of the unemployment income will not be taxed for people with income less than $150,000.

While filling out the taxes, you will receive Form 1099-G. It will show the details of how much income you have received and the amount of taxes with it.

What are the platforms offering tax consultation?

To make your tax problems a thing of the past, choose expertise dealing with state tax agencies, IRS, etc. Here is a list of some excellent agencies you can consider for tax consultation.

1. Fidelity Tax Relief

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2. Anthem tax Services

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3. Optima Tax Relief

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4. Legacy Tax and Resolution Services

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5. Community Tax

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What is the American Rescue Plan and the Third Stimulus Check?

  • The American Rescue Plan was signed on March 11, 2021. In this plan, the third round of stimulus payments was included.
  • It extended certain unemployment benefits, tax relief for unemployment benefits, federal income tax credit (EITC), and Child Tax Credit.
  • Eligible people will get up to $1400 in stimulus payments, distributed to each taxpayer in a family. So, if there’s a family with two children, they could receive $5600.

What are the common mistakes that taxpayers should avoid?

The IRS could take a minimum of four to six weeks to rectify your mistake, even if it is as common as a spelling mistake in your name. So, here we have mentioned some most common mistakes that you should avoid to get your return on time.

Not filing the taxes on time.

Making a silly mistake could wind up costing you. Filing for an extension may give you more time, but you still need to pay the taxes as well as interests. So, it’s better to put off filing your taxes before the deadline provided by the government.

Wrong address or name change

If you have legally changed your name or moved to a new place, don’t forget to update that in the state and federal tax documents. Any mismatch could delay your returns process, or even your refund could get mailed to the wrong address.

Unsigned forms

If you leave your form unsigned, you will not get your unemployment tax refund. So, make sure you sign it before sending it to the IRS. Also, if it is a joint return, both spouses must sign the form. You can avoid this error by signing your form digitally.

Falling into tax scams

Some unscrupulous individuals offer to prepare your taxes and steal your important information. As per studies, these thieves target tax professionals by sending emails such as “IRS Tax E-Filing” that appear to be sent from the IRS. Such phony emails verify critical information and steal individuals’ data.



How to apply for unemployment benefits?

Once you get unemployed, you can apply for unemployment benefits. To do so, you need to contact the state unemployment insurance office of the region you work. Depending upon the guidelines provided by your state, you can apply in person, online, or over the phone.


What is the eligibility for unemployment benefits?

Every state has different guidelines for eligibility. However, if you get unemployed through no fault of yours, meet your state's working timing and earning requirements, you can qualify.


What can disqualify me from receiving unemployment benefits?

You can be disqualified from receiving unemployment benefits if you are not actively seeking work, refusing an employment offer, being suspended for misconduct, or making a false claim to get unemployment benefits.


When will I get the additional unemployment refund from the IRS?

According to the IRS, the payments will be sent in two phases. In Phase 1, the IRS will arrange returns for those eligible for $10,200 exclusion. In Phase 2, payments will be given to married joint taxpayers and eligible for $20,400 exclusions.

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