Note: Netspend is not a tax advisor or CPA. The knowledge in this post is general information and should not replace the advice of a tax professional. For more information, please reach out to a tax professional in your area.
Whether you've just lost your job or have been out of work for some time, unemployment income can be a lifesaver when you need it. There's more to it than just the benefits you receive, however. Understanding how unemployment income works and any tax consequences that come from it are essential for continued financial well-being and long-term planning.
Do you pay income tax on unemployment? Will it count against you when applying for student loans? Here are the answers to the most-asked questions about this type of benefit.
Is unemployment taxable income?
Typically, it is. To understand more about unemployment compensation and how it is taxed you should consult a tax professional.
This year is different though, thanks to the American Rescue Plan that went into effect in early March 2021. For unemployment earnings in 2020, up to $10,500 will be tax-free for individuals and $20,400 for couples. This may not be available to everyone, however. Those earning above $150,000, including couples filing jointly, may not qualify and might have to pay the full tax on their unemployment earnings from 2020.
What if you already filed for 2020 and didn't get the waiver? The IRS is expected to issue guidance soon. You may consider discussing this with a tax professional.
How much unemployment did I get last year?
You should receive the total of your earnings on Form 1099-G. If you see a discrepancy, contact your state office for clarification.
Does unemployment count as income for loans or aid programs?
Depending on the reason, unemployment income may not be counted as income. Here are some sources that can provide more information:
- Free Application for Federal Student Aid (FAFSA) Contact the financial aid office at your college for more information.
- Health insurance marketplace For questions specific to your health coverage, contact your provider.
- Credit card or loan application — Contact your bank to find out what their requirements are.
The bottom line on unemployment benefits
If you've never received unemployment benefits until now, you probably have a lot of questions. Hopefully, this guide can help ease some of the stress around the topic and clear up any rumors about how your payments will and won't affect other parts of your financial life. Keep in mind, however, that tax guidelines and legislation can change rapidly. By staying updated on the news from your state unemployment office and the IRS site, it can help you avoid having any surprises pop up that derail your plans to get back on your feet.
