Congress acts to prevent surprise tax bills on unemployment payments from 2020

Congress+acts+to+prevent+surprise+tax+bills+on+unemployment+payments+from+2020

By Staff Report

Those who received unemployment last year will soon see a windfall if they selected to have taxes taken out of their weekly payments.

The latest stimulus package, which was signed by President Joe Biden earlier this month, includes a provision to waive the first $10,200 in taxable unemployment income for 2020.

The measure was added after concerns of surprise tax bills started to arrive when many individuals found they had chosen to not have income taxes taken out of their payments.

When Ohio Governor Mike DeWine, like many of his executive peers in other states, chose to shut down their economies in an attempt to stop the spread of the pandemic, many workers soon found themselves without a source of income.

During the month of March, Ohio recorded the single largest spike ever in unemployment claims and quickly neared total unemployment that rivaled only that of the Great Depression.

Near the tail end of the month, Congress passed the CARES Act, designed to fund every state’s unemployment system and provided other financial programs to help stabilize the economy.

One of those was the Paycheck Protection Program, designed to cover the weekly payroll for employers for up to eight weeks to prevent the unemployment system from being catastrophically overwhelmed.

It is still unknown if the program worked exactly as intended as many companies still had to layoff employees, but the program has been championed by businesses as giving them the economic help they needed.

Regardless, Ohio’s unemployment system was vastly unprepared and technologically outdated, resulting in a tidal wave of desperate unemployed workers who flooded the system needing money for food and bills.

Some states, such as Florida, like Ohio to a lesser degree, intentionally sabotaged their unemployment system over the decades to make filing and receiving unemployment tedious and complex.

‘The Perfect Storm’ as Ohio Lieutenant Governor Jon Husted would refer to it as would take time to fix and unbeknownst to officials at the time, would be riddled with fraud.

The CARES Act also created a separate unemployment program, Pandemic Unemployment Assistance (PUA), which was focused on supporting gig workers, the self-employed and those who worked part-time, all of who were barred from traditional unemployment.

That system would take months to fully implement.

The traditional unemployment system, which was available as mass layoffs began, collapsed almost immediately under the pressure.

Ran on a 2004 COBOL Mainframe, even the simplest of alterations to payments, such as the weekly unemployment bonuses, were all but impossible to implement.

Because so many states had inadequate systems in place, the bonus payments were a workaround to an initial attempt to match a worker’s previous wage, which proved nearly impossible on a majority of the systems in each state.

Ultimately, claimants received their payments but not before the state had to balloon staffing and rush to develop new systems all while many out-of-work individuals became desperate as they watched their savings quickly deplete.

Unemployment was continued with the passing of each new stimulus, as nearly three million fewer workers are employed today than were in February 2020, a month before the pandemic struck the states.

As part of the most recent stimulus, the American Rescue Plan Act of 2021, unemployment was extended until September 6.

The House passed plan included a weekly bonus payment of $400, or roughly $10 an hour, the Senate plan was to keep the already established $300 a week bonus, or $7.50 an hour, roughly the federal minimum wage.

As part of a final compromise, which allowed the bill to pass both chambers, the first $10,200 of unemployment earnings in 2020 would become tax-free.

The action was also designed to help alleviate growing concerns from many individuals who while preparing taxes found themselves owning more than they anticipated.

For those who had yet to file taxes, the change was simple, if they had taxes taken out weekly they would receive a windfall of roughly $1,000, if they had forgotten to have taxes taken out they would not owe any on that amount.

Any amount of unemployment over $10,200 for the 2020 tax year remains subject to federal income tax.

The problem was for those who had already filed their taxes and received unemployment last year.

Initially, the IRS said to wait and that they would provide guidance on how to file an amended tax return.

Last week, however, an update from the tax authority said that would not be necessary and those who have already submitted their returns will soon receive a reimbursement.

An exact date for when those payments may be expected has not yet been provided.

Tax Day, which is normally April 15, has also been extended to May 17, both at the state and federal level.