Unemployment benefits and Worker’s Compensation FAQ

Facts for unemployment insurance benefits and Worker’s Compensation for Fontana, Rancho Cucamonga and Inland Empire injured workers

Many injured workers who cannot return to their employment often times apply for unemployment insurance benefits. I received many questions about whether these benefits are taxable, whether stimulus payments are taxable and other issues. If you been injured at work, contact us for a free consultation and to determine whether your EDD benefits whether it be state disability insurance or unemployment insurance affect your Worker’s Compensation case. Many times these benefits overlap in some way with your Worker’s Compensation case if you’ve been injured at work presently or in the past and are contemplating filing for a workers compensation claim.

Are Unemployment Insurance Benefits Taxed by States and the Federal Government?

Yes. Unemployment insurance benefits are subject to both federal and state taxes. Before 2021, unemployment benefits counted toward your income and were taxed at rates according to the IRS’s tax brackets. The American Rescue Plan Act of 2021 (which most people call the stimulus bill) exempted some of that money from federal income taxes for tax year 2020. In  California, unemployment benefits are exempt from state tax.

Did the Stimulus Bill Change How Unemployment Is Taxed?

Yes. The American Rescue Plan Act of 2021 changed the tax code so that the first $10,200 of unemployment benefits you received in 2020 is free of federal taxes. That means that only the money you received over $10,200 counts toward your taxable income. For couples filing jointly, each person gets up to $10,200 in tax-free unemployment benefits before they have to start paying federal taxes on that income.

This exemption applies to individual and joint filers who made up to $150,000 in 2020. That number is what’s known as a “hard cliff” that applies regardless of whether you file as single, married or any other filing status. So if your household’s modified adjusted gross income in 2020 was a total of $150,001, you have to pay taxes on all unemployment benefits.

I Filed My Taxes Before the Stimulus Bill Was Signed. Do I Have to Do Anything?

No. The IRS will automatically recalculate the amount of taxes due and give you a refund if you overpaid, so long as your overall tax situation stays the same.

The only reason you’d have to file an amended return is if the law makes you newly eligible for a tax break like the Earned Income Tax Credit. If this applies to you, you can file an amended return using Form 1040X.

If I Collected Unemployment, What Paperwork Do I Need to File My Taxes?

States that gave you unemployment benefits should send you a Form 1099-G. This form calculates all the unemployment income you received and tells you how much (if any) was withheld for taxes. This should help you calculate your income when filing your taxes.

Do I Have To Pay Unemployment Back?

No. Unemployment benefits are yours to keep, except for the amount you may owe in taxes. But make sure you’re getting the right amount.

We hope this information was helpful, if you have a work injury with your currently working or not, you may have benefits available to you. Contact us anytime for a free consultation on your rights and benefits.


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