Most Unemployment Benefits No Longer Taxable Income!
Family child care providers who received state and federal unemployment benefits in 2020 no longer have to pay federal income taxes on the first $10,200 they received.
This became a new law on March 11th as part of the American Rescue Plan that included $1,400 in new stimulus checks. To qualify for this new law, your families adjusted gross income must be less than $150,000. Your adjusted gross income is your business profit, plus your spouse's gross income, social security benefits, interest and some additional types of income. This number will appear on IRS Form 1040, line 11.
You should have received a Form 1099-G that shows how much you received in unemployment benefits in 2020. Your state may have also issued you Form 1099-G to reflect state unemployment benefits and the additional $600 a week federal unemployment compensation. The $10,200 limit applies to the combination of federal and state unemployment benefits.
If you have not filed your 2020 tax return yet
Previously, unemployment benefits were reported on Form 1040, Schedule 1, line 7 as "additional income." If you received less than $10,200 in unemployment benefits and your adjusted gross income is less than $150,000, the new law says to enter the amount you received in unemployment benefits on line 7, and the same amount as a negative number (put it in parentheses) on line 8. This will have the effect of cancelling out the amount on line 7. For details on how to fill out Schedule 1, see the IRS instructions here. Your situation may make filling out Schedule 1 a little more complicated than I have described.
If you have already filed your 2020 tax return
The IRS says not to amend your tax return. They will be issuing new guidance about what to do shortly.
Are my unemployment benefits taxable on my state tax return?
Maybe. Each state makes its own laws about whether unemployment benefits are taxable on your state personal income tax return. To find out the law in your state, Google, "Are unemployment benefits taxable in _______ (name of your state)."
How do unemployment benefits affect the Paycheck Protection Program (PPP)?
They don't. Unemployment benefits aren't considered as gross income when applying for either the First Draw or Second Draw PPP. They also have no impact on the Economic Injury Disaster Loan Program (EIDL).
Comments
This new law will come as a relief to many family child care providers! Many did not previously realize that unemployment benefits were taxable on their Form 1040 and hadn't anticipated paying higher taxes as a result.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://abc7.com/edd-delay-unemployment-reapply-refile/10399833/
