The $10,200 Unemployment
Tax Break

The $10,200 Unemployment Tax Break Generally, unemployment compensation received under the unemployment compensation laws of the United States or a state is considered taxable income and must be reported on your federal tax return.

However, a new tax break - in effect only for the 2020 tax year - lets you exclude the first $10,200 from taxable income. Here's what you should know:

The tax break, which is part of the American Rescue Plan Act of 2021 (ARPA is available to all taxpayers whose 2020 modified adjusted gross income is less than $150,00 and allows you to exclude the first $10,200 of unemployment compensation received in 2020.

For joint returns, the first $10,200 per spouse (i.e., $20,400 for two workers who are married filing jointly) is not included in gross income.

Taxpayers with a modified adjusted gross income of $150,000 or more last year do not qualify for the tax break and are required to file taxes on the full amount of unemployment compensation.

If you already filed your 2020 tax return and paid tax on unemployment compensation that qualifies for the tax break, in most cases, there is no need to file an amended return.

Taxpayers should only file an amended return if the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.

Taxpayers may want to review their state tax returns as well. The IRS will determine the correct taxable amount of unemployment compensation and tax. If there is any overpayment of tax, it will be either refunded or applied to other outstanding taxes owed.

The recalculations will take place in two phases; single filers and other taxpayers eligible for the up to $10,200 exclusion, followed by married filing jointly taxpayers eligible for the up to $20,400 exclusion and others with more complex returns.