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The pandemic-induced collapse of the economy in March 2020 meant that many Americans will be filing their 2020 taxes after having received substantial income from unemployment benefits. Are Unemployment Insurance Benefits Taxed by States and the Federal Government?
Yes. Unemployment insurance benefits are subject to both federal and state taxes. Before 2021, unemployment benefits counted toward your income and were taxed at rates according to the IRS’s tax brackets. The American Rescue Plan Act of 2021 (which most people call the stimulus bill) exempted some of that money from federal income taxes for tax year 2020.