Unemployment Stimulus: Am I Eligible for the New Unemployment Income Relief?

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The recently passed third stimulus relief package, known as the American Rescue Plan, expands federal unemployment benefits and provides tax free unemployment benefits.  

If you received unemployment benefits, TurboTax is here to help you understand what all of this means and to help you get every dollar you deserve.

Here is what you need to know:

The bill makes the first $10,200 of federal unemployment income ($20,400 for married filing jointly) tax-free for households with income less than $150,000. The legislation excludes only 2020 federal unemployment benefits from taxes, not unemployment income received in 2021.

  • If you have not filed your 2020 tax return, yet, TurboTax is up to date with the new law and will guide you on how to claim these additional unemployment benefits on your tax return. 
  • If you already filed your 2020 tax return, you do not need to do anything to get these additional unemployment benefits. The IRS announced that they will automatically adjust your return and send any additional refund amount directly to you. However, some people may now be newly eligible for additional deductions and credits not already included on the original tax return. In these cases, you will likely want to amend your return to claim these additional dollars. Additional information on this is below.

When will I get my additional unemployment refund from the IRS?

According to the IRS, they will send payments in two phases:

  • Phase 1: The IRS will adjust returns for taxpayers eligible for up to $10,200 exclusion. Payments for phase 1 are expected to start in May.
  • Phase 2: The IRS will adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns. No specific timing has been given for phase 2 payments.

How do I know if I am now eligible for additional deductions and credits, and what do I do to get them?

It’s a bit tricky.

The IRS will adjust your return and the amounts for any deductions and credits you claimed on it. For example, say you claimed the Earned Income Tax Credit (EITC) on your return. And because the new unemployment exclusion changed your income level, you would now be eligible for an increase in EITC amount. The IRS would adjust your return for you and send you the additional refund amount with your additional unemployment benefits. You are all set.

However, say you were not originally eligible for the EITC on your return, but now, because the exclusion changed your income, you are eligible for the EITC. You would need to amend your return to claim that new credit. If you chose not to amend your return, you’d only get the additional unemployment benefits automatically from the IRS and would miss out on additional money you’d be eligible for. 

If you filed with TurboTax, keep an eye on your inbox. We will be reaching out to you over the coming weeks to help you understand how all this affects you and with instructions on what to do.

How do I know how much unemployment income I received?

When it’s time to file your taxes, you will receive Form 1099-G, which will show the amount of unemployment income you received. Form 1099-G will also show any federal taxes you had taken out of your unemployment pay. You are now entitled to exclude the first $10,200 of federal unemployment income from paying any taxes.

Both my spouse and I received unemployment. Are we both eligible?

Under the American Rescue Plan, if you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200, if your modified adjusted gross income is less than $150,000.

If I received a subsidy to pay for 2020 health insurance, will I have to include my unemployment income and pay back the advance premium tax credit?

No you will not have to pay it back. Due to the challenges involved in estimating 2020 income when applying for a subsidy, the American Rescue Plan temporarily waives the requirement for taxpayers to pay back excess advance premium tax credits in their 2020 taxes regardless of your income level. In addition, the first $10,200 of your federal unemployment income is tax-free under the American Rescue Plan.

How much are federal unemployment benefits under the third stimulus package? 

The American Rescue Plan provides a $300 increase to federal unemployment payments until September 6, 2021. And freelancers and side giggers will continue to be eligible for unemployment benefits with the extension of the Pandemic Unemployment Assistance (PUA).

We’ve Got You Covered

TurboTax has you covered with the most up-to-date information regarding new legislation and tax filing changes and announcements in response to Coronavirus (COVID-19). TurboTax has proactive guidance related to the events that occured last year and will ask you simple questions about you and give you the tax deductions and credits you’re eligible for. If you have a simple tax return (1040 and no schedules), you may be able to file your federal and state taxes for free with TurboTax Free Edition.

You can find the latest information on the tax changes and announcements in response to COVID-19, here. Also check back with the Unemployment Center for tax tips, advice, and up to date information related to COVID-19 to help you with your taxes and finances in this time of need.

Comments (28) Leave your comment

  1. I have read that the IRS changed their calculation to not include unemployment as part of the MAGI calculation. My agi is above the 150k threshold but if they exclude the unemployment benefits, I would fall under it.

  2. Thank you so much for the updates! Hopefully I’m eligible to get some money back, every dollar counts.

  3. Thank God!!! People don’t realize that making over $75,000 as a single person in Seattle does NOT make you rich or comfortable. It really sucked not getting any of the last two stimulus payments. I hope this will help ease the burdens of this hard time. I’m lucky to be working again and hope everyone else gets there again soon!

    1. Hi John,

      The IRS will recalculate taxes on unemployment benefits and will begin to send refunds starting in May.

      Hope this helps.
      Sincerely,
      Katharina Reekmans

  4. So if I filed and received my refund do I just wait for the IRS to reimburse me for the money they took from my unemployment?

  5. I already filed my taxes with TurboTax and have pending payments ( each on April 15) to both the IRS and the State of Michigan. HOw can I cancel those pending payments?

    1. If you have already filed and scheduled your payment for April 15, you will need to cancel your payment and reschedule it. For your federal tax return, if you filed with TurboTax, you will need to contact the U.S. Treasury Financial Agent at 888-353-4537 to make that change. Changes to payments need to be made no later than 11:59 p.m. ET two business days prior to the scheduled payment date.

      For your scheduled payment with the State of Michigan, you will want to contact your state’s Department of Revenue to see what options are available to you.

      Hope this helps.
      Sincerely,
      Katharina Reekmans

    1. Hi Danny,

      The changes to the Child Tax Credit under the American Rescue Plan begin in the tax year 2021 (the taxes for file in 2022). While this credit is for next year’s tax filings, payments will be sent in advance but beginning no earlier than July 2021 so that people don’t have to wait till 2022 when they file their 2021 taxes. Check back on the blog for more updates on the Child Tax Credit!

      Hope this helps.
      Best,
      Katharina Reekmans

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