For those who received unemployment benefits last year, a possible tax surprise
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Sen. Dick Durbin, D-Ill., and Rep. Cindy Axne, D-Iowa, have just introduced a bill that would waive income taxes on the first $10,200 people receive in unemployment benefits.
Tens of millions of people were on unemployment at some point last year. And many may not know those benefits are taxable.
Every year when tax season rolls around, Mark Steber at Jackson Hewitt Tax Service says he asks those who come in if they claimed unemployment.
“And they say, ‘Well, yeah. I was unemployed for six or eight weeks,’ “Steber said. “And you say, ‘Well, that’s taxable.’ And they all go, ‘What?'”
Nearly 40% of people Jackson Hewitt surveyed in the fall said they didn’t know that unemployment insurance is taxable.
People can choose to have taxes taken out of their benefits during the year, but most don’t, said Elaine Maag at the the Urban-Brookings Tax Policy Center.
“People were very desperate for income,” Maag said. “And so they might have been loath to reduce that income that was coming into their house.”
But now, she said, a lot of people will be surprised to find that they owe taxes, or that their refund is a lot smaller than they were expecting.
“People expect their tax refunds. And then they use it to do things like go to the doctor or go to the dentist,” Maag said.
And not getting that money, she said, could have a real impact on people’s lives and on the economy.
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