No, there will not be an unemployment tax break for 2022.
The American Rescue Plan Act of 2021 provided a temporary exclusion of up to $10,200 of unemployment compensation from taxable income for individuals with modified adjusted gross incomes (MAGIs) below $150,000. This exclusion applied to unemployment compensation received in 2020.
However, this exclusion expired for unemployment compensation received in 2021 and beyond. The Consolidated Appropriations Act of 2023 did not extend the exclusion.
Reasons for the Expiration of the Unemployment Tax Break
The unemployment tax break was a temporary measure intended to provide relief to individuals who lost their jobs during the COVID-19 pandemic. As the economy has recovered and unemployment rates have declined, the need for this tax break has diminished.
Additionally, the cost of the tax break was a significant factor in its expiration. The Joint Committee on Taxation estimated that the exclusion would have cost the federal government approximately $18 billion in lost revenue in 2023.
Impact of the Unemployment Tax Break Expiration
The expiration of the unemployment tax break means that unemployment compensation received in 2022 and beyond will be fully taxable. This could result in higher tax bills for individuals who receive unemployment compensation.
The unemployment tax break was a temporary measure that provided relief to individuals who lost their jobs during the COVID-19 pandemic. However, the exclusion expired for unemployment compensation received in 2021 and beyond. Individuals who receive unemployment compensation in 2022 and beyond should be aware that it will be fully taxable.
Unemployed people will get a major tax break
FAQ
Is IRS refunding unemployment taxes?
What is the FUTA credit reduction for 2022?
What is the IRS exclusion for unemployment?
How much is Texas unemployment pay?
Will the 2022 tax break make a return?
Unfortunately, this tax break will not make a return for the 2022 tax filing season (i.e., the filing of 2021 tax returns). While unemployment figures still exceed pre-pandemic levels, the steep cost of the tax break coupled with forecasted improvements to the job market made it a tough sell to Congress. What Has Changed For 2022?
Will 2022 eliminate the unemployment tax break?
Thanks to the ever-shifting economic landscape, 2022 brings a plethora of changes into the world of tax preparation. In addition to eliminating the unemployment tax break, here are a few changes that may surprise you during your tax filing process. Congress has bolstered the Child Tax Credit for 2022.
How are unemployment benefits taxed?
Unemployment benefits are included along with your other income such as wages, salaries, and bank interest (For tax year 2020, the first $10,200 of unemployment income was tax free for taxpayers with an AGI of less than $150,000 regardless of filing status).
Can you get a tax break on unemployment benefits?
Notify the IRS as well so the agency can also report it and investigate. When it went into effect on March 11, 2021, the American Rescue Plan Act (ARPA) gave a tax break on up to $10,200 in unemployment benefits collected in tax year 2020. You had to qualify for the exclusion with a modified adjusted gross income (MAGI) of less than $150,000.