Millions of jobless Americans who have collected unemployment benefits throughout the coronavirus pandemic are now filing taxes to find they owe hundreds or even thousands of dollars back to the federal government.
The unexpected tax bills have come as a shock to those who are still not working and struggling to make ends meet.
»THIS WEEK: Democrats drop plan to tax corporations that don’t pay $15 minimum wage
“I was so upset. How do I owe over $600 in taxes?” said Erika Rose, 31. The Los Angeles resident has been unemployed since last April, and said her rent and utility bills had left her with only $20 to her name during a recent trip to the grocery store. “I have never been so fearful in my life of how I’m going to pay my bills.”
With bank accounts stretched thin and dwindling to nothing, many face dire straits and simply cannot afford to pay back the money.
Unemployment wages are paid weekly and are regarded in most states as regular taxable income.
»MORE: Biden rejects proposal to cancel $50,000 in student loan debt
However, fewer than 40% of 40 million Americans who received jobless benefits actually withheld taxes from the payments, according to The Washington Post, citing data from the liberal think tank Century Foundation.
Democratic lawmakers are calling for the taxes to be reduced or waived altogether.
Sen. Dick Durbin, D-Illinois, and Rep. Cindy Axne, D-Iowa, have introduced separate resolutions that would eliminate taxes on the first $10,200 of unemployment benefits received in 2020, the Post reported.
Economic advocates say legislation is necessary now to lessen financial burdens of people who remain out of work.
“I don’t think we should be taxing unemployment insurance benefits, generally, but we really should not be taxing them during a terrible recession,” said Brian Galle, a professor at Georgetown Law. ”The right thing to do is just zero out unemployment insurance income from last year.”
Proponents of forgiving taxes on unemployment point out that the pandemic recession was the most unequal in modern U.S. history, decimating low-wage workers. These Americans are the least likely to have any savings or be able to handle a surprise bill, the Post reported.
Nearly half of adults receiving unemployment between March and November lived in households with incomes below $50,000, according to a Century Foundation analysis of U.S. Census data, according to the Post.
»MORE: Outpacing Congress, Black Lives Matter offers $3 million in COVID relief funds
There is no provision for tax forgiveness in the latest $1.9 trillion stimulus bill that passed the House last weekend, which is now being debated in the Senate.
»RELATED: House passes $1.9 trillion pandemic bill on near party-line vote
Under normal economic conditions, Americans would typically take short-term unemployment lasting no more than a few months, resulting in modest tax bills. The pandemic, however, has delivered a prolonged recession with persistent unemployment of a year or more and with many jobs that will never return from the brink.
»MORE: Tax penalties gone for tapping 401(k) early, but experts still say don’t do it
During previous downturns, such as during the Great Recession, Congress introduced legislation to eliminate some tax liabilities for the unemployed.
Taxation of jobless benefits varies from state to state.
Nine states don’t have income taxes and do not tax unemployment benefits, according to the Post.
Another six states — Alabama, California, Montana, New Jersey, Pennsylvania and Virginia — specifically do not seek taxes from unemployment income.
Maryland and Delaware temporarily set aside taxing the unemployed during the pandemic, the Post reported.
Applicants for jobless benefits can check a box to have taxes withheld from the funds, but the Post reported that several who did still ended up incurring significant taxes.
About the Author
