Jo Willetts, EA
Director, Tax Resources
Published on: April 20, 2020
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In late December 2020, Congress passed the Omnibus Spending Bill which included the COVID Tax Reform Act of 2020 (COVIDTRA 2020). It’s an extension to the CARES Act designed to provide additional help to protect businesses and individuals from the economic effects of the Coronavirus.
As the Coronavirus began spreading in February and March, cities enforcing “stay at home” orders, requiring all “nonessential” businesses to close. As millions lost their jobs, Congress quickly passed the CARES Act, providing increased unemployment benefits, among other things as part of a stimulus package to mitigate the effects of the economic slowdown.
In November, the number of individuals affected spiked again forcing many states to issue “stay at home orders” increasing unemployment and forcing businesses to shutdown again. Congress passed COVIDTRA 2020 with a host of tax related and other changes including an additional round of unemployment benefits.
Providing over $900B in economic stimulus, the COVIDTRA 2020 provides millions of unemployed Americans with extended unemployment benefits to get through the next few months. It contains a variety of provisions, from direct payments to taxpayers to tax breaks, and more.
Perhaps the most important provisions are the unemployment benefits, including:
As of this date, over 12 million Americans are out of work due. If you’re one of them, you could be eligible to receive expanded unemployment benefits outlined in the COVIDTRA 2020. In fact, there are a number of ways you can qualify for expanded benefits.
You may be qualified to collect unemployment benefits if:
Benefit eligibility varies by state. And not everyone who’s out of work qualifies for these increased unemployment benefits. If you’re a remote worker or you quit your job for reasons unrelated to coronavirus, you won’t be eligible. But even if you’re not, the COVIDTRA 2020 also provides an additional stimulus check for individuals and families based on their Adjusted Gross Income. The amount is based on your 2019 tax return, or your Social Security, Railroad Retirement Equivalent, or Veteran’s Administration benefits.
Individuals with an AGI up to $75,000 and Heads of Households with an AGI up to $112,500 will receive $600. Married couples filing jointly with an AGI up to $150,000 will receive $1,200. You could also receive an additional $600 for each child. Taxpayers whose AGI is above these amounts may still receive a stimulus payment, but it will be reduced by $5 for every $100 of income above the limit. Higher income taxpayers may receive a small stimulus check, or no payment at all.
Since benefits are paid by the state where you live, eligibility requirements and the amount paid vary by state. When the federal government steps in as with the COVIDTRA 2020, additional weeks of benefits will be paid at the rate you were receiving them. This is the same as when the federal government provides increased unemployment benefits during recessions or periods of high unemployment.
The difference this time is the additional $300 in weekly benefits the federal government has also provided. You can estimate your benefits using our stimulus calculator.
There is no waiting period to apply. But keep in mind that a large number of people are still without jobs, so state unemployment offices are overwhelmed. If you’re eligible, contact your state unemployment office and apply as soon as you can to reduce any potential delay as much as possible.
When you apply, most states require basic information such as your name, social security number, driver’s license, mailing address and banking information for direct deposit. You’ll also need to provide your employment history over the last year or so, including the name and address of your employer, supervisor’s name, start and end dates, income, and the reason for unemployment. Given the backlog, it probably makes sense to gather all this information before you apply.
Unemployment benefits are paid by the state where you live. So, you should go online to find your state’s unemployment office and follow the instructions. As we mentioned, however, state officials are often overwhelmed, so it may take some time to get through.
Yes, the COVIDTRA 2020 affects you in a couple of ways. First, even if your benefits are ending soon you’re eligible for increased unemployment benefits. The COVIDTRA 2020 expanded emergency benefits through 24 weeks valid until until March 14, 2021. You’re also eligible for an additional $300 per week in benefits on top of the state benefits you’re already receiving.
Unemployment benefits are taxable, just like regular income. Since we usually don’t think of withholding on these benefits, taxpayers collecting unemployment could end up with a tax bill come April. If you want withholding from your unemployment benefits, you have to ask your state unemployment office to do it. Even then, they will only withhold at a flat rate of 10%. You have to be careful too, in the event you’re collecting unemployment for an extended period.
While credits like EITC and Child Tax Credit can increase your refund, they’re based on earned income, and unemployment isn’t considered earned income. That could mean a big difference in your tax refund next year. Due to the generally negative impact on the EITC from a large amount of unemployment compensation, taxpayers may be eligible to use their 2019 earned income to calculate both their EITC and Additional Child Tax Credit. Of course, every taxpayer’s situation is different.
Want to learn more? Read our tax tips for unemployment.
Obviously, none of us has ever been through anything like this and we’re all trying to find out why. Fortunately, the COVIDTRA 2020 could help. And Jackson Hewitt is here too, to answer questions and provide answers as best we can.
Of course, the situation is always changing, and the government continues to issue new guidance about the COVIDTRA 2020. You can keep up with the latest here. It’s not easy. But we will get through this. Together.
About the Author
Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 25 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.
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