Washington – Today, Rep. Mike Thompson (CA-05) introduced legislation that would exempt delayed unemployment insurance payments received in 2021 from taxation. The American Rescue Plan exempted from taxation $10,200 of unemployment benefits paid in 2020, but due to delays at the California Employment Development Department (EDD), many taxpayers did not receive one or more payments until calendar year 2021, leading many constituents with an unfair tax liability on their 2022 returns.
“As the COVID-19 pandemic forced many workers out of their job and onto unemployment benefits, I worked to pass the American Rescue Plan to exempt up to $10,200 of unemployment insurance payments from taxation,” said Thompson. “However, because of delays at the EDD office that were out of their hands, my constituents are faced with a tax liability. I am proud to introduce this bill to ensure that any UI payments meant to cover weeks in 2020 are tax free up to $10,200, even if they were received in 2021."
Cosigners of this legislation include Reps. Doris Matsui (CA-06), Eric Swalwell (CA-15), Anna Eshoo (CA-18), Jimmy Panetta (CA-20), Julia Brownley (CA-26), Lucille Roybal-Allard (CA-40), Nanette Diaz-Barragán (CA-44), Katie Porter (CA-45), and Alan Lowenthal (CA-47).
If a filer’s modified adjusted gross income (AGI) was less than $150,000, the American Rescue Plan Act enacted on March 11, 2021, allowed them to exclude from income up to $10,200 of unemployment compensation paid in 2020. This means they did not have to pay tax on unemployment compensation of up to $10,200 on their 2020 tax return only. If they are married, each spouse receiving unemployment compensation could exclude up to $10,200 of their unemployment compensation. Amounts over $10,200 for each individual were still taxable. If their modified AGI is $150,000 or more, they could not exclude any unemployment compensation.