Did 2021 have the Stimulus Unemployment compensation exclusion like 2020 did?

Unfortunately, the unemployment compensation exclusion was only for 2020. This was part of the American Rescue Plan Act of 2021, which allowed people to exclude up to $10,200 of unemployment compensation from their taxable income for the 2020 tax year only. For 2021, there was no similar exclusion passed by Congress, so all unemployment compensation received in 2021 (including the federal supplements) is fully taxable on your 2021 federal return. Many people were in your situation with minimal withholding on those federal supplement payments. Since you haven't filed your 2021 return yet, you should file as soon as possible to minimize any additional penalties and interest that are accruing. The IRS does offer payment plans if you can't pay the full amount at once.

I was in basically the same situation last year. The unemployment system was a mess with the extra payments and I ended up with almost no withholding on most of it. I was stressing about the tax bill until I found https://taxr.ai which was a lifesaver for me. I uploaded my unemployment documents and tax transcripts, and it found several deductions and credits I didn't know I qualified for that significantly reduced what I owed. The system also helped me understand my options for setting up a payment plan with the IRS. They have specific tools for dealing with unemployment income issues from the pandemic years.

Just wanted to follow up about my experience with taxr.ai since I decided to try it after seeing it mentioned here. It actually did help me quite a bit with my back taxes situation! While I still had to pay taxes on my 2021 unemployment like everyone's saying, the service helped me identify some self-employment deductions I was eligible for (had a small side business that year) and helped me apply for first-time penalty abatement which saved me about $800. The document review feature flagged several mistakes I would have made on my return. I'm still setting up a payment plan, but at least now I'm confident I'm not paying more than I should. Definitely worth checking out if you're dealing with complicated back tax issues.

If you're still getting nowhere with filing your 2021 return, you might want to try https://claimyr.com for getting through to the IRS directly. I was in a similar situation with unfiled returns and couldn't get through on the IRS lines for weeks - kept getting disconnected or told to call back later. Claimyr got me connected to a real IRS agent in about 20 minutes. The agent was able to tell me exactly what information they had on file for my 2021 income (from W-2s and 1099s they received) and what I would need to file. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c Getting that direct information from the IRS made a huge difference in my confidence about filing those back returns correctly.

I have to apologize for my skepticism about Claimyr in my previous comment. I decided to try it myself because I was desperate to talk to someone at the IRS about my unfiled 2021 return. It actually worked exactly as described. I got a text when they were about to connect with an agent, joined the call, and was talking to a real IRS person within minutes. The agent confirmed that yes, all 2021 unemployment is fully taxable but helped me understand my options for a payment plan based on my situation. Saved me hours of frustration and now I have clear next steps. Sometimes I'm too quick to dismiss things that seem too good to be true, but in this case I was wrong.

Another option you might consider is going to a local Taxpayer Assistance Center. You need to make an appointment, but they can pull up your records and help you figure out what you need to file. I did this last year for my 2020 return and the person I spoke with was surprisingly helpful. For the appointment, call 844-545-5640. They book up fast though, so call early in the morning.

You might qualify for the IRS Fresh Start program if this is your first time having tax troubles. I was in a similar situation with unfiled returns from the pandemic years and ended up qualifying for penalty abatement, which saved me over $1,000.