The $1.9 trillion Covid relief bill gives a tax break on unemployment benefits received last year. The measure allows each person to exclude up to $10,200 in aid from federal tax.
The bill made the first $10,200 of unemployment income, or $20,400 for married couples filing jointly, tax-free for filers with 2020 adjusted gross income of less than $150,000 (for both singles and couples). This applies to your federal tax return. In California Unemployment is nontaxable.
Not everyone qualifies for the tax cut. Only people who earned less than $150,000 in 2020 are eligible.
This income threshold operates as a cliff: Anyone who earned $150,000 or more last year doesn’t get any of the tax break.
The $150,000 ceiling is the same for all taxpayers, regardless of filing status, such as single or married.
One wrinkle: Taxpayers must use their total unemployment benefits received when determining their income eligibility for the tax break.