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More than a dozen states are not offering any new unemployment benefit tax breaks.
This means that taxpayers will have to pay a state tax on benefits they received in the past year, unless there are changes in state law.
The American bailout plan waived federal taxes on up to $ 10,200 per person unemployment benefits raised in 2020. The $ 1.9 trillion Covid relief effort applies to individuals and couples whose incomes were less than $ 150,000.
State tax
But not all states followed suit.
Thirteen do not exclude unemployment benefits from taxes, according to tax advisor H&R Block on Monday.
They are: Colorado, Georgia, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, North Carolina, New York, Rhode Island, South Carolina, and West Virginia.
The remainder do not tax unemployment benefits for several reasons. Some do not levy personal income tax. Others expressly exclude unemployment income from state taxes. Some, like Indiana and Wisconsin, offer a partial tax break for benefits.
Others adopted the new federal rule. In these areas, benefits up to $ 10,200 are exempt from tax, but excessive amounts are taxable. The income limit also applies.
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These states include: Connecticut, Iowa, Illinois, Kansas, Louisiana, Maine, Michigan, Missouri, North Dakota, Nebraska, New Mexico, Oklahoma, Oregon and Utah, and Washington, DC
Others like Arizona, Ohio, and Vermont have not officially adopted the federal standard, but they do so administratively – their tax forms allow eligible taxpayers to apply for the break and effectively give them the waiver.
“It’s a mix,” said Andy Phillips, a director at the H&R Block Tax Institute, which studies changes in tax law. “Each state has its own legislature and will make its own decisions.”
According to the Century Foundation, around 40 million Americans received unemployment benefits last year. The average person got $ 14,000.
Small tax?
In states that do not offer unemployment tax breaks, taxpayers must count back any benefits that are excluded on their federal tax returns when filing their state taxes.
However, the state tax won’t necessarily be much depending on the tax rate.
For example, Colorado taxpayers pay a flat rate of 4.63% of income, which would include unemployment benefits. Kentucky and Massachusetts have a flat tax rate of 5%. Mississippi has a top tax rate of 5%, resulting in an income in excess of $ 10,000.
However, some states have higher rates. Hawaii, for example, has a top tax rate of 11%. New York and Minnesota have peak rates of 8.82% and 9.85%, respectively. (However, a lower marginal tax rate would likely apply to taxpayers eligible for the federal tax break.)
States that have not accepted the American Rescue Plan’s tax break can still choose to do so.
For example, the Indiana Treasury Department said this may occur “depending on actions taken by the General Assembly during the remainder of the legislature,” which may last through April, the agency said in mid-March.
The state extended its filing deadline to May 17 to accommodate the one-month federal extension.
However, Colorado officials signaled that taxpayers would not get the tax break. According to the Ministry of Finance, the state’s income tax regulations do not contain any retrospective changes made by the federal government. It did so with the American Rescue Plan, which changed tax rules during the filing season.
“Heads of state will continue to review aspects of the American Rescue Plan Act to find additional ways to assist those unemployed and employers in Colorado who pay unemployment insurance premiums and to support a strong economic recovery for Colorado,” the said Agency on March 22nd.