Congresswoman warns of surprise tax bills for unemployed workers if Congress doesn't act

Jessica Smith
·Chief Political Correspondent
2 min read
0

Rep. Cindy Axne (D., Iowa) is warning surprise tax bills could be coming for many Americans who lost their jobs during the pandemic.

“That's something that they don't expect and it could really impact their family’s finances,” said Axne in an interview with Yahoo Finance Live.

Axne and Sen. Dick Durbin (D., Ill.) introduced a bill this week that would waive federal income taxes on the first $10,200 in unemployment benefits received in 2020. Some Americans who have received unemployment benefits may not realize they’ll owe taxes on their unemployment benefits — unlike stimulus checks.

Congress has significantly expanded unemployment benefits in response to the pandemic. The CARES Act created new programs to let workers receive benefits for a longer period of time and ensure more workers were eligible for unemployment insurance. The bill also included and extra $600 per week in benefits through the end of July. In December, Congress passed another bill providing an extra $300 per week through mid-March.

FILE - In this Thursday, Nov. 5, 2020, file photo, a booklet describing unemployment benefits is seen on a desk, in North Andover, Mass. A second round of relief is poised to affect the finances of millions of Americans as soon as the end of this year. The $900 billion package includes $600 one-time checks for those earning under $75,000 — half of what people received from the original pandemic relief package, known as the CARES Act. For unemployed Americans, $300 of supplemental unemployment insurance will top other unemployment benefits for 11 weeks. (AP Photo/Elise Amendola, File)
A second round of relief is poised to affect the finances of millions of Americans as soon as the end of this year. The $900 billion package includes $600 one-time checks for those earning under $75,000 — half of what people received from the original pandemic relief package, known as the CARES Act. (AP Photo/Elise Amendola, File)

“We've got to make sure that we're keeping money in people's pockets. The first thing that we need to do is ensure that the money that they've received actually goes towards purchases that they need to keep their family afloat,” said Axne.

Congress has given tax relief during an economic crises before. In 2009, Congress passed up to $2,400 in tax relief for unemployment benefits.

Sen. Bernie Sanders (I., Vt.) has also called on Congress to “make sure that unemployment benefits during this crisis period are not taxable so that workers don’t get hit with a huge tax bill they didn’t expect.”

Michele Evermore, senior analyst for the National Employment Law Project, recently wrote in the Washington Post that these proposals are a good start, but “this crisis should spark a conversation about the need to end taxation of unemployment benefits entirely.”

Axne told Yahoo Finance making long-term changes to the taxation of unemployment benefits is something Congress could eventually consider.

“We've got a lot of things that we need to support and we need the revenue for that — but hitting somebody when they're down is probably not the best way to collect our taxes,” said Axne.

Axne said she plans to try to make sure the legislation is included in the next stimulus package, but she thinks it could get enough support to pass on its own.

Jessica Smith is chief political correspondent for Yahoo Finance, based in Washington, D.C. Follow her on Twitter at @JessicaASmith8.

Read more:

Advertisement