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The unemployment benefits in the $1.9 trillion stimulus plan that President Joe Biden signed into law on Thursday included a tax exemption on the first $10,200 of the benefits received last year. But it could still be difficult for taxpayers to claim this exemption, and Senate Democrats are pushing the IRS to make it as easy as possible.
In a letter led by Senate Democratic Whip Dick Durbin, supported by 20 other Democrats, he requested that the IRS and the Treasury Department take action to ensure Americans are aware of the tax exemption. He also asked that they remove the current requirement of an amended tax return for the taxpayers who have already filed.
The letter added that if doing so isn't possible, accessible information should be provided to taxpayers who have already filed on how to file an amended return as quickly as possible.
"We recognize the challenges of implementing this change in tax law during filing season, particularly as millions of Americans have already filed their tax returns for 2020," the letter said. "This underscores the need for Treasury and the IRS to take every action to ensure that all eligible individuals, including those who have already filed their 2020 tax return, are aware of and able to receive this critical relief."
Biden's stimulus plan provides an income tax exclusion on the first $10,200 of unemployment benefits received in 2020 for households earning under $150,000, which the letter said could reduce the tax bills of unemployed workers by more than $1,000. It doesn't apply to jobless benefits paid out after December 31, 2020.
Under the plan, eligible Americans are set to receive $300 weekly federal unemployment benefits through September 6.
White House Press Secretary Jen Psaki said on Twitter on March 5 that Biden supported the extended unemployment benefits, along with the tax exemption, to help struggling Americans.
"The compromise amendment achieves that while helping to address the surprise tax bills that many are facing by eliminating the first $10,200 of UI benefits from taxation for 2020," Psaki said. "Combined, this amendment would provide more relief to the unemployed than the current legislation."
Durbin's letter also notes that the Treasury Department and IRS should conduct "a robust public awareness campaign" to ensure those who received unemployment benefits are aware they can receive more federal relief.
"This may be especially important for those who could be eligible for a larger Earned Income Tax Credit or Child Tax Credit with this exclusion, or are newly eligible for these credits," the letter said.
The stimulus law also extended Pandemic Unemployment Assistance for gig workers and Pandemic Emergency Unemployment Compensation for long-term unemployed people until Labor Day.
