Was unemployment taxable 2021 - Washington ESD tax confusion help needed

Yes, unemployment was taxable in 2021 BUT there was a special provision that excluded up to $10,200 of unemployment compensation from federal taxes for people with adjusted gross income under $150,000. Since you received $8,200, all of it should be excluded from your federal taxes. You should have received a 1099-G form from Washington ESD showing the amount you received.

wait hold up, i thought ALL unemployment was tax free in 2021??? i never paid taxes on mine and now im freaking out

I had the same confusion! The IRS was supposed to automatically process refunds for people who filed before the law changed, but it was a mess. I ended up having to call them multiple times to sort it out. If you're just filing now though, you should be able to claim the exclusion directly on your return.

Don't forget about state taxes too. Washington doesn't have state income tax so you're lucky there, but if you moved to another state during 2021 you might owe state taxes to that state on your unemployment benefits.

UGH the whole 2021 tax situation was such a nightmare. The government made unemployment benefits taxable then gave us a break but only told us AFTER most people already filed. I had to amend my return twice because of all the confusion.

For 2021 specifically, here's what you need to know: Regular unemployment benefits (like what you received from Washington ESD) were taxable income, but the American Rescue Plan Act provided an exclusion for up to $10,200 per person ($20,400 for married filing jointly) if your AGI was under $150,000. This exclusion applied to all types of unemployment compensation including regular UI, PEUC, and PUA.

I'm a tax preparer and saw so many confused clients about this. The key thing to remember is that even though you don't owe federal taxes on the excluded amount, you still need to report the full amount of unemployment benefits you received on your return. The exclusion is taken on a separate line.

ok so im definitely screwed then since i got more than 10,200... how much trouble am i in for not paying taxes on the excess amount?

Another thing to watch out for - if you had federal taxes withheld from your unemployment benefits during 2021, you might actually get a refund even if you owe taxes on part of it. Check your 1099-G to see if any taxes were withheld.

For anyone still dealing with IRS issues from 2021, I had success using that Claimyr service someone mentioned earlier. They helped me get through to the IRS when I needed to check on my amended return status. Way better than sitting on hold for hours.

Just to be clear about the timeline - the $10,200 exclusion for 2021 unemployment was different from the 2020 exclusion. For 2021, it was specifically for people who received unemployment compensation and had AGI under $150,000. The IRS didn't automatically process these like they did for some 2020 returns.

The whole thing was such a cluster. First they tell us unemployment is taxable, then they change their minds halfway through tax season. I swear the government just makes this stuff up as they go along.

One more important detail - if you received other types of income in 2021 that pushed your AGI over $150,000, you wouldn't qualify for the unemployment exclusion at all. It's not prorated, it's all or nothing based on your total income.

Also remember that even though Washington doesn't have state income tax, if you moved during 2021 or lived in multiple states, you might have different rules to deal with. Each state handled the unemployment tax exclusion differently.

update: i looked at my 1099-G and i had $2,400 in federal taxes withheld so maybe i wont owe as much as i thought

This thread is super helpful! I was putting off my 2021 taxes too because I was confused about all this. Sounds like I need to dig up my 1099-G and just get it done.

Quick tip - if you can't find your 1099-G, you can download it from your Washington ESD account online. Way faster than waiting for them to mail you a copy.

For anyone who needs to talk to the IRS about 2021 unemployment tax issues, seriously check out Claimyr. I tried calling the IRS directly so many times and could never get through. With their service I was connected to someone within 20 minutes. Game changer.

Final reminder for everyone - even if your unemployment benefits are excluded from federal taxes, they still count as income for purposes of other tax credits and deductions. So they might affect your Earned Income Credit, Child Tax Credit, etc.

Hope this helps everyone get their 2021 taxes sorted out. The unemployment tax situation that year was confusing for everyone, including tax professionals. Don't feel bad about being confused - just make sure you file correctly now that you have the right information.