UNEMPLOYMENT TAX BREAK RETURN IN 2022?
Will the Unemployment Tax Break Return in 2022?
Nobody wants to admit it, but the scenario of losing one’s job may be much more common than you think. According to a study by LeadershipIQ, a staggering 46% of new hires either get laid off or fired during their first 18 months of employment — and this was before the effects of the COVID-19 pandemic reverberated through the U.S. economy. While experiencing unemployment is nothing to be ashamed of, the loss of stability and income can be highly stressful for the hundreds of thousands of Americans who experience unemployment per year.
As the economy recalibrated in the wake of the COVID-19 pandemic, unemployment numbers decreased in 2021. However, unemployment is still well above pre-pandemic levels. Many taxpayers will find themselves navigating their second consecutive tax season with unemployment benefits in the mix, but unemployment benefits are taxed differently this year.
How Are Unemployment Benefits Taxed?
The IRS considers unemployment payments to be taxable income; if you received unemployment income during a given year, you must report it on your annual tax return. Come tax time, taxpayers who benefitted from unemployment benefits in the past year will receive Form 1099-G from their state unemployment division. This form outlines the total unemployment compensation received for the given tax year.
When it comes to paying taxes on your unemployment benefits, you have a few options. Many taxpayers choose to voluntarily withhold taxes from each payment to avoid the large bill come tax time. In addition, you could choose to make quarterly estimated tax payments.
Will the Unemployment Tax Break Return This Year?
Last tax season, taxpayers were eligible for a tax waiver on unemployment income up to $10,200 as part of the American Rescue Plan Act, a comprehensive legislative package aimed at providing relief to American taxpayers during the Covid-19 pandemic. Unfortunately, this tax break will not make a return for the 2022 tax filing season (i.e., the filing of 2021 tax returns). While unemployment figures still exceed pre-pandemic levels, the steep cost of the tax break coupled with forecasted improvements to the job market made it a tough sell to Congress.
What Has Changed For 2022?
Thanks to the ever-shifting economic landscape, 2022 brings a plethora of changes into the world of tax preparation. In addition to eliminating the unemployment tax break, here are a few changes that may surprise you during your tax filing process.
- The Child Tax Credit Is Back and Better Than Ever
- Congress has bolstered the Child Tax Credit for 2022. Initially offering up to $2,000 per qualifying child, this year’s version sees an 80% bump to $3,600 per child under the age of 6 ($3,000 for a qualifying child aged 6 to 17). If you have previously received part of the Child Tax Credit in advance, you should have received a letter from the IRS in January. This letter will allow you to calculate any future Child Tax Credit payments you are eligible for this tax season.
- Charity Deductions Are Easier to Obtain
- Prior to 2020, taxpayers had to itemize any charitable donations to be eligible for deductions. The rules have been changed, however — taxpayers can claim up to $300 for cash donations ($600 if married filing jointly) for gifts to qualifying charities.
Tax Bracket Income Thresholds Have Adjusted for Inflation
- To compensate for the rampant inflation over the past year, the IRS has raised the income thresholds for each tax bracket by about ten percent.
- The IRS Now Tracks Taxpayer Activity on Third-Party Payment Apps
- The future of payroll for contractors and self-employed taxpayers is finally under the IRS’s jurisdiction. The 2021 filing season is the first in which third-party payment services such as Venmo, Paypal, Cashapp, and more must report user activity to the IRS. Taxpayers who receive more than $600 through a third-party payment service will receive a Form 1099-K and a filing requirement.
Having TAXiety? We Have the Answers.
It’s no secret — taxes can be a challenge to understand. If preparing for this year’s tax season gives you TAXiety, don’t hesitate — schedule an appointment with your local Liberty Tax Practitioner. Let the tax pros at Liberty Tax be your tax resource.