Unemployed could get tax break, COBRA health coverage
HOUSTON - If the House passes President Biden's relief bill this week, people who have lost jobs could get more than just an additional $300 a week in unemployment benefits. They could also receive a big tax break and free health insurance.
One of the most common questions this tax season is whether unemployment benefits are taxable income? The answer is yes.
But if the relief bill is passed, the first $10,200 received in 2020 would be tax-free.
"We're having trouble paying bills because I have to pay the bills, help out with bills, and food is a struggle," said Trey Thomas.
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Thomas collected unemployment benefits after losing his job last year as a supervising lifeguard at a City of Houston pool. Then he says a mistaken notice that he was overpaid started holding up his benefits for the last six weeks.
"For the longest time, I couldn't apply. They say, 'request a payment.' They tell me I can request a payment, but they still give me no money," said Thomas.
But he and other unemployed workers may get a break.
President Biden's relief bill would make the first $10,200 of unemployment benefits received in 2020 tax-free to people earning less than $150,000 for the year.
"Hypothetically, if someone was in the 12% bracket and receives that $10,200, that's over $1200 in tax savings," said Certified Public Accountant Ed Gardner.
Anyone who has already filed their federal tax return would need to file an amended return to receive the tax break.
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"It was retroactive to last year, 2020. So what they would do is they would file a form 1040-X to amend their tax return," explained Gardner.
But Gardner suggests waiting until you receive an expected tax refund, or straighten out any overpayment or underpayment in unemployment benefits first.
"I would not file the amended return until they get a refund check they would have gotten on the first return. Otherwise, that could mess up the IRS system. It could delay any and all refunds," said Gardner.
Another benefit for workers who lose a job this year, the bill would cover 100% of the cost of COBRA health coverage (created under the Consolidated Omnibus Budget Reconciliation Act), which allows people to keep their employer's health insurance, from April 1 through September 30.
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Those are all breaks that Thomas says could help the unemployed.
"I won't have to pay taxes on the first $10,000. That's going to help me, that's going to help me with more income. I'm actually a student as well, so that's going to help with school," said Thomas.
The House is expected to vote on the relief bill on Wednesday.