As we head into the home stretch of tax season, some taxpayers may be surprised to hear that the state they live in is not offering a tax break on unemployment benefits, leaving those people on the hook to pay state tax on benefits they received in 2020.
Taxing unemployment benefits is fairly standard in most states, but a lot of people may need to pay even more this year because of the relief funds they received from the government. While the federal government waived federal tax on up to $10,200 of unemployment aid per person under the American Rescue Plane (ARPA), only some states are allowing exceptions.
The states not offering tax breaks
According to data from tax preparer H&R Block and Kiplinger, the states that aren’t excluding unemployment compensation from taxes as of March 30, 2021, are:
It’s important to note that states marked with an asterisk could change their tax laws and reverse their position. In ConsumerAffairs’ research of the situation, there are several state legislatures with bills trying to make their way through the channels to offer tax breaks on unemployment benefits. During a recent briefing, West Virginia’s Gov. Jim Justice announced that he has submitted just such a bill.
“Some other states are requiring their people to pay taxes on the unemployment they received as a result of the pandemic,” Justice said. “We’re not going to do that in West Virginia. We need to stand rock solid with all of our fellow West Virginians who had to endure some really tough times over the past year.”
If you reside in one of those asterisked states, you would be wise to double-check with the state’s unemployment or tax office before doing your taxes to figure out what you may owe. To help, the U.S. Department of Labor has a complete list of individual state unemployment offices. The Federation of Tax Administrators also offers a comprehensive list of state tax agencies, available here.