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Millions are getting unemployment tax bills, Congress sending some relief

unemployment tax bill
Posted at 1:08 PM, Mar 10, 2021

More than 20 million Americans lost their jobs in 2020, and roughly 9 million people are still unemployed.

Many of those who filed for and received unemployment benefits are now surprised by a hefty tax bill. For some, their bills have been a few hundred dollars, and for others, it’s been a few thousand.

Dotti Ohlman, for example, owes more than $6,000 in taxes this year, which is more than she has owed in 10 years. She had three jobs prior to the pandemic, but she lost them all at the very beginning of shutdowns in Arizona and has not been able to work since. A tax bill on unemployment benefits she received and on a life insurance policy she had to cash out is another bill she won’t be able to pay.

Josh Davenport, who worked in New York as an entertainment electrician, owes $2,800 in just state and city taxes. He has held off on filing his federal tax return, waiting on help from the latest stimulus package passed by Congress. In the latest stimulus package, unemployed Americans will get $300 in weekly benefit, instead of the $400 proposed, and taxes for the first $10,200 of unemployment compensation received in 2020 will be waived.

“It is helpful,” said Stephanie Freed. "It means $1,200 or $2,400, depending on your tax bracket, might come back to you or you at least won’t owe it. But people have collected more than $10,000 in benefits this year and so they are still owing tax bills.”

Freed is with the advocacy group Extend PUA, which pushed for Congress to do more at the federal level and is now pushing for states to waive some or all of the tax liability for those who are unemployed.

“Without state-level forgiveness, I am in a little bit of trouble,” said Davenport.

Even with potential tax forgiveness at the federal level, Davenport doesn’t know how he can come up with $2,800 for his state and city taxes. He’s going to file an extension on the tax bill, which will add fees and interest, but it is the only way to try and buy some time to pinch pennies even more.

"I know that Lincoln is screaming on that penny every time I stretch it out,” said Davenport.

As for Dotti Ohlman, she is so overwhelmed with bills that she knows she can’t pinch any further. Friends and family have sent her money, and the money she gets from unemployment just barely covers her rent and car insurance. She was hoping for a boost in benefits to $400 a week to help her catch up financially, but that won’t happen in the latest stimulus package.

“I have nowhere else to turn. I have tapped even a friend in New Zealand,” said Ohlman. "So, I think I am going to go into denial.”

Ohlman said she is mentally drained after the tough financial year she has faced, and she says she just doesn’t have the mental capacity to deal with the tax bill. Expert warn, though, ignoring tax bills can result in hefty penalties. Experts recommend, at the very least, even if you can’t pay the bills, you should still file your taxes and an extension. It will result in fewer penalties and fees.