
Many types of payments are reported as unemployment. Some of them may not qualify for the $10,200 exclusion.
We are assuming that President Biden has signed the stimulus bill by the time you read this post since the House passed it today.
As we mentioned in out last post, up to $10,200 of unemployment benefits will be tax-free (at least at the federal level; every state will determine separately whether it is taxable or not).
However, other payments such as Paid Family Medical Leave (PFML) proceeds are also reported on Form 1099-G under “unemployment”. Our reading of the law appears to indicate that these proceeds do not qualify as “unemployment” for purposes of the tax-free exclusion amount. This means that many of these proceeds that are entered into the tax return will likely result in too much of unemployment being reported as tax-free.
The IRS may then match this reporting up at a later time and send a bill to the farmer or taxpayer.
For example, in our state (Washington), the form comes from State of Washington Employment Security Department and reports the PFML in box 1 as Unemployment Compensation. There is a sub-heading that states “Paid Family and Medical Leave”. Many of these forms are automatically scanned into tax software programs and they will not know the difference between regular unemployment or PFML.
There is a chance that the IRS may come out and state that these proceeds do qualify for the exemption, but in the meantime be forewarned.
Want to learn more? Complete the form below and we'll be in touch. If you are unable to see the form below, please complete your submission here.Contact us