Unemployment Tax Break: Don’t Amend Your 2020 Tax Return to Claim the New Exemption – Kiplinger’s Personal Finance
Americans who received unemployment benefits last year can claim a special new tax break included in the $1.9 trillion American Rescue Plan Act recently signed by President Biden: Up to $10,200 of unemployment benefits received in 2020 is exempt from federal income tax for households with an adjusted gross income under $150,000. If you're married, you and your spouse can each exclude up to $10,200 of unemployment compensation. Normally, Uncle Sam fully taxes unemployment compensation (just like wages), so this is a big break for many people who lost their job last year and were facing a big and possibly unexpected federal tax bill on the tax returns their filing this year.
But there's still one big question surrounding this new tax exemption: How do you claim it? The IRS doesn't have an answer for everyone yet but it's working on it. How to handle the new tax break will also depend on whether or not you already filed your 2020 tax return. If you haven't filed yet, the IRS has updated the Schedule 1 (Form 1040) instructions and provided an Unemployment Compensation Exclusion Worksheet for paper filers. It's also working with tax software companies to update their products so that users will be able to claim the exemption on their 2020 tax returns. So, if you received unemployment compensation last year, you might want to wait a little bit longer before using one of these software products to complete your 2020 return. That will give the software provider time to make the necessary adjustments.
It's a little more complicated if you already filed your 2020 tax return. The knee-jerk reaction for many people is to file an amended return to claim the unemployment tax exemption. However, the IRS expressly stated that you "should not file an amended return at this time, until the IRS issues additional guidance." So, again, you should wait before taking any action to claim the new $10,200 tax break for unemployment benefits.
What might that "additional guidance" be? On March 18, IRS Commissioner Charles Rettig told Congress he believes the tax agency will be able to "automatically issue refunds associated with the $10,200" exemption. If that's the case, people who filed their 2020 return before the exemption was enacted won't have to file an amended return at all to get the new tax break.
[Stay on top of all the new stimulus bill developments Sign up for the Kiplinger Today E-Newsletter. It's FREE!]
If you qualify for the 2020 unemployment compensation exemption, you may end up getting additional tax breaks, too. That's because your adjusted gross income (AGI) will be reduced by up to $10,200 (up to $20,400 for married couples filing a joint return). That means you could suddenly be allowed to claim other tax breaks with an AGI-based eligibility cut-off, or claim a larger amount for a tax break with an AGI-based phase-out, such as the earned income tax credit, child tax credit, retirement saver's credit, American Opportunity credit, Lifetime Learning credit, or student loan interest deduction. A reduced AGI could also mean a larger third stimulus check, since the eligibility for and amount of these payments is tied to your 2020 AGI.
The new tax exemption only applies to unemployment benefits received in 2020. So, if you receive unemployment compensation in 2021 or beyond, expect to pay federal tax on the amount you get.
To avoid big tax bill when you file your 2021 return next year, consider having taxes withheld from any unemployment payments you receive this year. Contact your state unemployment office to have federal income taxes withheld from your unemployment benefits. You may be able to use Form W-4V to voluntarily have federal income taxes withheld from your payments. However, check with your state to see if it has its own form. If so, use the state form instead.
You can also make estimated tax payments as an alternative. You can pay all your estimated tax by April 15, 2021, or in four equal amounts by the following dates:
You don't have to make the final payment if you file your 2021 tax return by January 31, 2022, and pay the entire balance due with your return.(Note that, even though this year's general federal income tax return filing deadline was pushed back from April 15 to May 17, the due date for the first estimated tax payment is still April 15, 2021.)
Just because the federal government is waiving taxes on the first $10,200 of your 2020 unemployment benefits, that doesn't mean your state will too. Although some states don't tax, or don't fully tax, unemployment compensation, most states do. However, a handful of states exempt unemployment compensation just for 2020 and/or 2021 to help residents impacted by the pandemic. To see how your state treats unemployment benefits, see Taxes on Unemployment Benefits: A State-by-State Guide.
Read the rest here:
Unemployment Tax Break: Don't Amend Your 2020 Tax Return to Claim the New Exemption - Kiplinger's Personal Finance
- Top Password Recovery Software for 2025: All the Best Services Picked by the Experts - TechRadar - October 19th, 2025 [October 19th, 2025]
- Windows 10 PC can't be upgraded? You have 5 options - and must act now - ZDNET - October 19th, 2025 [October 19th, 2025]
- Free Software Foundation Is Serious About The Librephone Project [To Bring Mobile Freedom To The Masses] - It's FOSS News - October 17th, 2025 [October 17th, 2025]
- FSF Librephone battles the proprietary binary blob - theregister.com - October 17th, 2025 [October 17th, 2025]
- World's first truly free software phone? That's the FSF's new 'long game' - ZDNET - October 17th, 2025 [October 17th, 2025]
- Belarusian authorities bought trace-free tracking software, an investigation finds - - October 17th, 2025 [October 17th, 2025]
- First convictions linked to Post Office Capture software referred for appeal - Free Press Series - October 17th, 2025 [October 17th, 2025]
- 10 open-source Windows apps I can't live without - and they're all free - ZDNET - October 15th, 2025 [October 15th, 2025]
- Borderlands 4: Gearbox Software Reveals Upcoming Content for the Game Including a DLC, a Free Event and More - IGN India - October 15th, 2025 [October 15th, 2025]
- Triple-zero software 'hanging by a thread' - Kyabram Free Press - October 15th, 2025 [October 15th, 2025]
- Free Up More Google Drive Space at No Cost With These Hacks - CNET - October 13th, 2025 [October 13th, 2025]
- 8 free Linux apps that make tricky tasks surprisingly easy - no command line required - ZDNET - October 13th, 2025 [October 13th, 2025]
- Running Out of Space on Your iPhone? Before You Delete Anything Try This - CNET - October 11th, 2025 [October 11th, 2025]
- 4 free video editors that make me question why I ever paid for Adobe software - XDA - October 9th, 2025 [October 9th, 2025]
- A 2TB PCIe 5.0 SSD for less than $140? This Crucial P510 Prime Big Deals Day discount with free Acronis software is exactly why I'm putting it... - October 9th, 2025 [October 9th, 2025]
- At 40 Years, Free Software Foundation Now Wants to 'Free Your Phone' - It's FOSS News - October 9th, 2025 [October 9th, 2025]
- 8 free Linux apps that are surprisingly useful - no command line required - ZDNET - October 4th, 2025 [October 4th, 2025]
- We Finally Have Free Anti-Robocall Tools That Work - The New York Times - October 4th, 2025 [October 4th, 2025]
- Illinois State Bar Association Offering Free Trust Accounting & Billing Software to All Members With Smokeball Bill - Illinois State Bar... - October 2nd, 2025 [October 2nd, 2025]
- Suffolk tech giant pledges $10m to give charities free software for life - Ipswich.co.uk - October 2nd, 2025 [October 2nd, 2025]
- Eventide Temperance Lite, "the world's first musical reverb plugin": free download for a limited time - synth anatomy - October 2nd, 2025 [October 2nd, 2025]
- Windows 10 extended support is now free, but only in Europe Microsoft capitulates on controversial $30 ESU price tag which remains firmly in place... - September 30th, 2025 [September 30th, 2025]
- You can now install iOS 26 on your iPhone: Everything to know about the free software update - Engadget - September 30th, 2025 [September 30th, 2025]
- Turns out, Microsoft will offer Windows 10 security updates for free until 2026but unfortunately not in the US or the UK - PC Gamer - September 30th, 2025 [September 30th, 2025]
- Free Alternatives to Photoshop and Word: How to Save on Software - 112.ua - September 30th, 2025 [September 30th, 2025]
- Delete those pricey programs with our four tips to help you find the best bargain software solutions - The Sun - September 30th, 2025 [September 30th, 2025]
- BlueCruise is Getting Better for Current Truck Owners - Ford From the Road - September 28th, 2025 [September 28th, 2025]
- Best typing tutor software of 2025 - TechRadar - September 25th, 2025 [September 25th, 2025]
- You can update your iPhone to iOS 26 for free right now - here's which models support it - ZDNET - September 25th, 2025 [September 25th, 2025]
- This is the best photo editing software to use in 2025 - Amateur Photographer - September 25th, 2025 [September 25th, 2025]
- From Abuse to Alignment: Why We Need Sustainable Open Source Infrastructure - Sonatype - September 25th, 2025 [September 25th, 2025]
- Think you've seen the weirdest place to play DOOM? Think again - Creative Bloq - September 23rd, 2025 [September 23rd, 2025]
- OpenSSF to freeloaders: Open source infra isn't free - theregister.com - September 23rd, 2025 [September 23rd, 2025]
- I transformed our LAN gaming setup with a mini PC and free software - XDA - September 21st, 2025 [September 21st, 2025]
- iOS 26 is ready to download: Everything to know about the free iPhone software update - Engadget - September 21st, 2025 [September 21st, 2025]
- Filmmakers - you can now storyboard your next movie totally free with this software - Yahoo! Tech - September 21st, 2025 [September 21st, 2025]
- Oak Creek Police Crime Analyst Wins Top International Award with Innovative Free Software Dashboard - Hoodline - September 21st, 2025 [September 21st, 2025]
- Molecularbytes Atomicreverbfree, a free algorithmic reverb for macOS and Windows - synth anatomy - September 19th, 2025 [September 19th, 2025]
- Meadows Introduces Free Imposition Software for Adobe InDesign - PRWeb - September 19th, 2025 [September 19th, 2025]
- Lucid just gave its EV owners a free dash cam mode and Tesla-style parking monitor all from a software update - TechRadar - September 19th, 2025 [September 19th, 2025]
- My Google Pixel just updated and is better than ever get your free software upgrade now - T3 - September 19th, 2025 [September 19th, 2025]
- NLSIU study hails Keralas KITE as key model for implementing Free and Open Source Software (FOSS) - The Times of India - September 19th, 2025 [September 19th, 2025]
- These are the top free Windows tools that I use on a daily basis to boost my productivity - Tom's Hardware - September 17th, 2025 [September 17th, 2025]
- iOS 26 is finally here: Everything to know about the free iPhone software update - Engadget - September 17th, 2025 [September 17th, 2025]
- When does iOS 26 come out? Date and time you can download the new iPhone operating system around the world - Fast Company - September 17th, 2025 [September 17th, 2025]
- Why Pie Is Becoming the UKs Go-To Free Tax Software in 2025 - The Globe and Mail - September 13th, 2025 [September 13th, 2025]
- iOS 26: What to know about the free iPhone software update ahead of the Apple event today - Engadget - September 11th, 2025 [September 11th, 2025]
- I built a photo editing workflow with nothing but free and open-source tools - xda-developers.com - September 9th, 2025 [September 9th, 2025]
- TapeFi Stop, free vinyl stop simulator plugin for macOS and Windows - synth anatomy - September 9th, 2025 [September 9th, 2025]
- Farming Simulator 25 Releases Third Free Update - Bleeding Cool News - September 6th, 2025 [September 6th, 2025]
- One of the biggest names in video editing is coming to smartphones and it's free. Meet Premiere Pro for mobile - Digital Camera World - September 5th, 2025 [September 5th, 2025]
- Microsoft wants to give US government Copilot for free - theregister.com - September 3rd, 2025 [September 3rd, 2025]
- I Thought My Gmail Inbox Was Toast. Then I Got Back 15GB of Free Storage - CNET - September 3rd, 2025 [September 3rd, 2025]
- The Truth About KMSPico Downloads: Risks and Better Alternatives - inkl - September 3rd, 2025 [September 3rd, 2025]
- Artistapirata Download Free Programs, Games, and Software in 2026 - nerdbot - August 29th, 2025 [August 29th, 2025]
- Cognyte Software Ltd. stock prediction for this week - July 2025 Closing Moves & Free Low Drawdown Momentum Trade Ideas - Newser - August 29th, 2025 [August 29th, 2025]
- Analyzing Upland Software Inc. with multi timeframe charts - Forecast Cut & Free Growth Oriented Trading Recommendations - Newser - August 29th, 2025 [August 29th, 2025]
- Can Upland Software Inc. recover in the next quarter - Options Play & Free Growth Oriented Trading Recommendations - Newser - August 27th, 2025 [August 27th, 2025]
- Custom watchlist performance reports with Asure Software Inc. - Weekly Market Summary & Reliable Breakout Stock Forecasts - Newser - August 27th, 2025 [August 27th, 2025]
- Is Paycom Software Inc. forming a reversal pattern - Trend Reversal & Free Reliable Trade Execution Plans - Newser - August 27th, 2025 [August 27th, 2025]
- What the charts say about CyberArk Software Ltd. today - Weekly Volume Report & Free Reliable Trade Execution Plans - Newser - August 26th, 2025 [August 26th, 2025]
- Is this a good reentry point in Guidewire Software Inc. - 2025 Market Sentiment & Free AI Powered Buy and Sell Recommendations - Newser - August 26th, 2025 [August 26th, 2025]
- Trend analysis for OneStream Software LLC this week - Weekly Trend Summary & Free Expert Approved Momentum Trade Ideas - Newser - August 24th, 2025 [August 24th, 2025]
- Detecting price anomalies in Paycom Software Inc. with AI - July 2025 Volume & Free Community Supported Trade Ideas - Newser - August 24th, 2025 [August 24th, 2025]
- Using AI based signals to follow Unity Software Inc. - July 2025 Breakouts & Free Verified High Yield Trade Plans - Newser - August 24th, 2025 [August 24th, 2025]
- Best graphic design software of 2025: Top picks tested for creative professionals and beginners - TechRadar - August 22nd, 2025 [August 22nd, 2025]
- Garmin Fenix 8 and Venu X1 get free software update that includes top features for runners and triathletes - Tom's Guide - August 22nd, 2025 [August 22nd, 2025]
- 6 Free and Open-Source Software for Creating Stunning Presentations - How-To Geek - August 18th, 2025 [August 18th, 2025]
- "It's one of the most powerful software sound design tools on earth and it's free": Try out this modular audio processing playground used... - August 18th, 2025 [August 18th, 2025]
- BetBlocker and ROGA Partner to Expand Free Gambling Blocker Access in the U.S. - European Gaming Industry News - August 14th, 2025 [August 14th, 2025]
- Hyundai & Kia thefts are down, Camaro ZL1 thefts are up, and a software glitch may be to blame. - wfmynews2.com - August 14th, 2025 [August 14th, 2025]
- There Is No Such Thing as Free Technology Software Solutions - ICTworks - August 12th, 2025 [August 12th, 2025]
- UnplugRed ModMan, a free perlin noise modulation plugin for mac, Linux and Windows - synth anatomy - August 12th, 2025 [August 12th, 2025]
- HY-Plugins HY-MBMFX3, multiband multi-FX plugin with modulation & free version - synth anatomy - August 7th, 2025 [August 7th, 2025]
- Choose the right software for Making Tax Digital for Income Tax - GOV.UK - August 3rd, 2025 [August 3rd, 2025]
- Best free PDF editor of 2025: We tested out these completely free to use apps - TechRadar - August 1st, 2025 [August 1st, 2025]
- D&D is 'here to earn your trust, not ask for it', starting with making Beyond's maps software free, brushing up the SRD, and sharing 'third-party... - August 1st, 2025 [August 1st, 2025]
- The Best Video Editing Software We've Tested (July 2025) - PCMag - July 27th, 2025 [July 27th, 2025]
- Download iOS 26 now and upgrade your iPhone to the Liquid Glass look for free - T3 - July 27th, 2025 [July 27th, 2025]
- What drives Smith Micro Software Inc. stock price - Free Smart Trading Workshop - Autocar Professional - July 24th, 2025 [July 24th, 2025]