Democrats offer bill to provide tax relief to unemployment recipients

Sen. Dick Durbin (D-Ill.) and Rep. Cindy Axne (D-Iowa) on Tuesday introduced a bill aimed at providing tax relief to people who received unemployment benefits last year amid the coronavirus pandemic.

The legislation would exempt from federal income taxes the first $10,200 in unemployment benefits that taxpayers received last year.

Both people who received unemployment benefits through federal programs and people who received benefits through state programs would be eligible for the tax relief, according to a news release from the lawmakers.

“Families across the country are struggling to keep a roof over their head, food on the table, and to pay for health care and other necessities,” said Durbin, the No. 2 Senate Democrat. “As we grapple with the economic pain of this pandemic, the bill I’m introducing today with Rep. Axne would provide tax relief to unemployed Americans so they can spend their benefits supporting their families and their communities.”

Axne said that she introduced the bill to ensure that unemployment recipients “don’t face an unexpected tax bill, which could put them into further economic peril this April.”

Unemployment benefits are generally subject to federal income taxes, as well as to state income taxes in most jurisdictions.

However, many people who collected unemployment benefits last year for the first time may not have been aware of the tax treatment of those benefits, or may not have had any taxes withheld from their benefits. As a result, lawmakers and tax preparers are concerned that benefit recipients may be surprised by a smaller-than-usual refund or a balance due to the IRS when they file their 2020 taxes this year.

Millions of people have received unemployment benefits since the start of the pandemic, and Congress has passed legislation that expanded the benefits.

Congress last March passed legislation that boosted unemployment benefits by $600 per week through the end of July. A release from Durbin and Axne noted that their bill would provide tax relief that would cover 17 weeks of the $600 boost.

In December, Congress passed legislation that boosts unemployment benefits by $300 per week through March.

It’s unclear whether Durbin and Axne’s bill will be included in a coronavirus relief package this year. A 2009 stimulus law enacted during the Great Recession excluded $2,400 of unemployment benefits from federal income taxes for that year, but President Biden’s proposed $1.9 trillion package didn’t include any proposal to exempt unemployment compensation from taxes.

Several other Democrats have signed onto Axne and Durbin’s bill, including prominent progressives such as Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), and Rep. Ro Khanna (D-Calif.).