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| If you’ve lost your job because of the coronavirus, you’re not alone: Ten million people, or 6.2 percent of the U.S. workforce, were unemployed in February. The good news: You may not owe as much in federal and state income taxes on your 2020 unemployment compensation as you would have in previous years.
More unemployment benefits than usual in 2020
Unemployment soared in 2020 because of the pandemic and, because of that, many people received unemployment compensation who had never done so before. And unemployment compensation was generous in 2020.
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That’s not normally the case. Many states cap their highest unemployment insurance (UI) payment at half the state’s average weekly wage, and some have even lower benefit caps. In February 2020, when the recession started, average weekly UI benefits were about $387 nationwide but ranged from a low of $215 in Mississippi to $550 in Massachusetts, according to the Center on Budget and Policy Priorities, a nonpartisan think tank. About 4.1 million people have been unemployed for more than 26 weeks, which is when state unemployment insurance typically runs out.
Under the CARES Act, enacted March 27, 2020, people who were laid off because of the coronavirus pandemic were eligible to get an additional $600 per week until July 31, 2020. This federally funded benefit extended to people who weren’t traditionally covered by state unemployment insurance. Under what’s called the Pandemic Unemployment Assistance (PUA) program, the self-employed, independent contractors and so-called gig workers were covered by unemployment for up to 39 weeks if they lost their jobs as a direct result of the pandemic. Another program, the Pandemic Emergency Unemployment Compensation (PEUC) program, gave an additional 13 weeks of federally funded unemployment insurance payments.
In December 2020, Congress authorized a $900 billion relief package that included an extra $300 per week in unemployment benefits through March 14 — half the amount in the CARES Act. The legislation also extended the PUA and the PEUC programs for an additional 11 weeks. Under the American Rescue Plan Act, signed into law March 11, the $300 weekly payments to eligible workers will continue until Sept. 6.