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Millions are getting unemployment tax bills, Congress sending some relief

unemployment tax bill
Posted at 1:08 PM, Mar 10, 2021
and last updated 2021-03-10 16:55:01-05

More than 20 million Americans lost their jobs in 2020, and roughly 9 million people are still unemployed.

Many of those who filed for and received unemployment benefits are now surprised by a hefty tax bill. For some, their bills have been a few hundred dollars, and for others, it’s been a few thousand.

Dotti Ohlman, for example, owes more than $6,000 in taxes this year, which is more than she has owed in 10 years. She had three jobs prior to the pandemic, but she lost them all at the very beginning of shutdowns in Arizona and has not been able to work since. A tax bill on unemployment benefits she received and on a life insurance policy she had to cash out is another bill she won’t be able to pay.

Josh Davenport, who worked in New York as an entertainment electrician, owes $2,800 in just state and city taxes. He has held off on filing his federal tax return, waiting on help from the latest stimulus package passed by Congress. In the latest stimulus package, unemployed Americans will get $300 in weekly benefit, instead of the $400 proposed, and taxes for the first $10,200 of unemployment compensation received in 2020 will be waived.

“It is helpful,” said Stephanie Freed. "It means $1,200 or $2,400, depending on your tax bracket, might come back to you or you at least won’t owe it. But people have collected more than $10,000 in benefits this year and so they are still owing tax bills.”

Freed is with the advocacy group Extend PUA, which pushed for Congress to do more at the federal level and is now pushing for states to waive some or all of the tax liability for those who are unemployed.

“Without state-level forgiveness, I am in a little bit of trouble,” said Davenport.

Even with potential tax forgiveness at the federal level, Davenport doesn’t know how he can come up with $2,800 for his state and city taxes. He’s going to file an extension on the tax bill, which will add fees and interest, but it is the only way to try and buy some time to pinch pennies even more.

"I know that Lincoln is screaming on that penny every time I stretch it out,” said Davenport.

As for Dotti Ohlman, she is so overwhelmed with bills that she knows she can’t pinch any further. Friends and family have sent her money, and the money she gets from unemployment just barely covers her rent and car insurance. She was hoping for a boost in benefits to $400 a week to help her catch up financially, but that won’t happen in the latest stimulus package.

“I have nowhere else to turn. I have tapped even a friend in New Zealand,” said Ohlman. "So, I think I am going to go into denial.”

Ohlman said she is mentally drained after the tough financial year she has faced, and she says she just doesn’t have the mental capacity to deal with the tax bill. Expert warn, though, ignoring tax bills can result in hefty penalties. Experts recommend, at the very least, even if you can’t pay the bills, you should still file your taxes and an extension. It will result in fewer penalties and fees.

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NEW TAX LAW

If you’re wondering how you’re affected, not to worry, we have your back. We’re doing the work to make sure our products are up to date and that you can use them to file your taxes with complete confidence.

That said, many folks are wondering what’s in the bill and how it might affect them. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact you.

Increased Standard Deduction: The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit: For, families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Personal and Dependent Exemptions: The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018. State and local taxes/Home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

Health Care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So for 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.

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Don’t worry about memorizing these tax changes the majority of which are for 2018 taxes that you file in 2019. Fastax has you covered and will be up to date with the latest tax laws. Call us for tax help at 661 493-8512