You’ve probably heard how the latest relief bill also gives those with unemployment income a break on taxes. What’s probably unclear is exactly how to claim the unemployment tax break.
As the details for your federal and state taxes emerge, know this. H&R Block is here to help. Whether you’re wondering how to claim the unemployment tax break if you already filed or are getting ready to do so, Block has your back.
What you should do now
Already filed? The IRS is currently advising taxpayers not to amend at this time. Further guidance will be announced on their website www.irs.gov.
2020 unemployment tax break
In the meantime, let’s recap what we know. Normally, unemployment income is taxable on the federal level and in most states. However, the American Rescue Plan Act changes that and gives taxpayers a much-needed unemployment tax break.
Specifically, the rule allows you to exclude the first $10,200 of benefits (up to $10,200 for each spouse if filing jointly) from your income on your federal return if you have an adjusted gross income of less than $150,000 for all filing statuses in 2020. Any benefits you report over the $10,200 threshold will be taxed as normal.
On your return, you’ll figure the exclusion and report the amounts on Schedule 1 (Form 1040), lines 7 and 8.
How to claim the unemployment tax break for your state taxes
For state taxes, adoption of the new rule will vary — and information is changing frequently.
• Is your state adopting this new $10,200 tax break on unemployment income?
• Can you claim it now? If not, what are your options?
Find your state’s information and determine your next step.
• If your state is ready to file today, you can prepare and file your federal and state return today!
• If your state is not ready today, you can file your federal return today, but you may want to wait to prepare your state return.