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Collected unemployment in 2021? You could be in for a large tax bill
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When the COVID-19 outbreak first erupted in early 2020, many people lost their jobs as non-essential businesses were forced to shutter. And many people spent much of 2021 out of work as well.
In March of 2021, the American Rescue Plan was signed into law, and that bill made a lot of aid available to the public. Not only did it send a third round of stimulus checks into Americans' bank accounts, but it also boosted the Child Tax Credit, whose monthly payments during the second part of 2021 served as a lifeline for many families.
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Another thing the American Rescue Plan did was exempt up to $10,200 of unemployment benefits from taxes for the 2020 tax year. That, too, saved jobless workers a fair amount of money.
But while workers were entitled to tax-free unemployment income in 2020, that wasn't the case in 2021. And now, a lot of people who collected jobless benefits last year could be in for an unpleasant surprise when they file their tax returns.
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You may owe the IRS money
Unemployment is a taxable income source. Those who collect it get the choice to have federal taxes withheld from their weekly benefits upfront, or collect their benefits in full but pay that tax later on.
Recipients who went the former route in 2021 may not owe much or any money on their taxes now as a result. But those who didn't have tax withheld from their jobless benefits may now have a tax debt on their hands.