Hundreds of thousands of People who had been unemployed final 12 months are dealing with one other shock: a 2020 tax invoice they can not afford

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Millions of Americans who were unemployed last year are facing another shock: a 2020 tax bill they can't afford

As Americans prepare to file their 2020 income taxes, a new Democrat-backed bill aims to block federal income taxes on the first $ 10,200 a person received in unemployment benefits last year.

With negotiations in Capitol Hill buzzing over President Joe Biden’s proposed $ 1.9 trillion bailout, one observer said there was a real chance the proposal would catch on.

Unemployment insurance is considered taxable income and recipients are required to withhold income tax on their application files. Alternatively, they can either pay quarterly estimated taxes or pay the amount owed when filing their income taxes.

But many people are unaware that the money from unemployment benefits goes into a person’s taxable income, surveys show. Some tax professionals are concerned about the potentially millions of people facing a bill they cannot afford.

The more the conversation is directed at the people who are most in need, “the more likely this bill will become law,” said Ed Mills, a Washington political analyst with Raymond James.

In part of Biden’s plan, he wants to increase the current federal additional payouts from $ 300 per week to $ 400 per week and extend it through September.

The Internal Revenue Service can work out installment payment plans with taxpayers who cannot pay the entire bill at once.

In the CARES bill, the federal government approved additional weekly unemployment payments of $ 600 through July on top of state payouts. Later in the year, then-President Donald Trump approved additional payments of $ 300. At the end of the year, Trump signed a green lighting bailout package through mid-March with an additional payout of $ 300.

$ 10,200 is equivalent to 17 weeks of additional $ 600 unemployment, according to Michele Evermore, senior policy analyst with the National Employment Law Project. By her calculations, a woman worker received an average of $ 24,000 in state and federal benefits over the past year.

Senator Richard Durbin of Illinois and Rep. Cindy Axne of Iowa, both Democrats, introduced the coronavirus law to provide tax relief for unemployment benefits. The bill also waives federal income tax on unemployment benefits that a person receives from their state employment agency.

Legislators improved unemployment benefits in 2020 “because we knew that having an adequate and stable source of income for workers trying to make ends meet is vital,” Axne said in a statement. The bill would “ensure these workers are not exposed to an unexpected tax burden that could place them in further economic danger in April”.

The 2009 Stimulus Act to Fight the Great Recession also included income tax breaks for unemployment insurance of $ 2,400, Durbin and Axne noted.

Durbin, as a member of the Democratic leadership, is giving the proposal some strength, Mills said. But what really might be eligible for the idea is a growing focus on determining help for the people who are still financially injured.

When it comes to Biden’s idea for a third wave of stimulus checks, new research suggests that households over $ 78,000 would save those most of the time rather than use the money in a recovering economy.

“What we see is a strong desire to target relief,” Mills said, “and there is a real concern that not enough focus has been placed on the lower leg of the ‘K’ in relation to the disproportionately suffering.” … The targeted tax relief on unemployment benefits is one way of using the tax relief in a targeted manner. ”

Mills is referring to what is known as “K-shaped recovery,” which is a widening gap between the economic well-being of richer and poorer households.

If the bill becomes law after people have already started filing taxes, Mills says there are ways the government can get those tax breaks for people who may be eligible for relief but are already “sending” their taxes have clicked for 2020.

“There are mechanics that need to be worked out, but someone shouldn’t hold taxes on hold and wait for Congress to make changes to the current tax law,” he said.

Elisabeth Buchwald contributed to this report.