![]() ![]() Cuomo’s budget office, in turn, laid the blame on the federal government, telling New York Focus that the federal government did not issue guidance in time on whether waiving state taxes on unemployment payments was permitted.īut Cuomo’s office did not respond to questions about how other states were able to waive those taxes in the same period it claimed federal rules were unclear or whether it supported passing the bill in the remainder of the legislative session, leaving the bill’s prospects dubious. Democratic legislators said the main obstacle was Governor Andrew Cuomo. Yet the legislation failed to make it into this month’s state budget. Legislators from both parties described the taxes to New York Focus as a penalty on the state’s most vulnerable. In a rare show of bipartisanship, sixteen of New York’s 20 Republican state senators have joined with progressive Democrats to support legislation to waive taxes for the first $10,200 of benefits. Most other states either already exempted unemployment benefits from taxes, passed legislation to do so after Biden’s announcement or had tax codes that automatically aligned with the federal government’s. President Joe Biden announced in March that the federal government would not tax the first $10,200 of unemployment benefits for taxpayers earning less than $150,000 in 2020. New York, which has the second highest unemployment rate in the country, is one of just 11 states that is fully taxing unemployment benefits, according to H&R Block. “The benefit at $504 dollars is already low, especially for those of us living in New York City, so taxing on top of that is just cruel, frankly,” said Freed, the Executive Director of ExtendPUA, an advocacy organization created during the pandemic. When she filed taxes for 2020, Freed discovered she owed New York State $1,200 for income taxes on unemployment benefits. Unemployment payments have helped her afford bills through the past year, though she hasn’t been able to pay rent in five months. H&R Block is also suggesting that residents who are impacted by the extra unemployment taxes in the 13 non-conforming states may want to hold off on filing their state taxes until closer to the tax deadline to allow time for state legislatures to potentially act and amend existing law.Before the pandemic shut down live events in New York City and wiped out two-thirds of the city’s arts, entertainment and recreation jobs, Stephanie Freed worked 14-hour days as an electrician for concerts, theaters and galas. That, of course, could change depending on the actions of the General Assembly during the remainder of legislative session.” Therefore, as of this time, it would need to be added back when filing the Indiana return. The state’s Department of Revenue included language on its website stating that, “as Indiana does not currently conform to the Internal Revenue Code as of a date that would include the Rescue Plan, that income exclusion does not currently apply in Indiana. Indiana is one example where action may still be taken. The list of states that are not waving taxes on unemployment compensation is dynamic and some may still decide to conform to the federal exemption. Therefore, state taxes on unemployment compensation alone could eat up between two to three weeks of enhanced federal payments. To contextualize, the Federal Pandemic Insurance Compensation (FPUC) is providing an extra $300 per week in benefits. That would translate into incremental state taxes of $841 on $10,200 in unemployment compensation. Residents with $150,000 in taxable income pay a marginal state tax rate of 8.25 percent. The impact is worse in Hawaii where state tax rates go as high as 11 percent. ![]() ![]() Without an exemption, someone who received $10,200 in unemployment compensation as part of their taxable income would be forced to pay an incremental $653 in state taxes. Someone with $150,000 in taxable income would be paying a marginal state tax rate of 6.41 percent. Take New York State, where state tax rates range from 4 percent to 8.82 percent. Taxing unemployment insurance is a “policy choice hurts lower-earning households, who have more difficulty making large one-time tax payments,” Pancotti and Brian Galle argued in a Century Foundation report. With nearly two-thirds of Americans living paycheck to paycheck since the pandemic started, the sad reality is that most may not have access to the necessary funds to pay their state tax liability. While state tax rates are typically lower than federal ones, the liability could still be substantial. Over $580 billion in unemployment insurance benefits was paid out in 2020 to roughly 40 million Americans. ![]()
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