Taxes are due in a month, but what does this mean for New Yorkers who were unemployed last year due to the pandemic?
When the federal government passed the American Rescue Plan Act of 2021 in March, Congress included an exemption so at least a portion of unemployment benefits from 2020 will not be federally taxed.
People whose adjusted gross income was less than $150,000 can exclude up to $10,200 of unemployment benefits from taxes in 2020.
However, State Budget Director Robert Mujica announced the state will still be taxing these unemployment benefits despite changes on the federal level.
And for Kevin Fallon, this means he might owe around $2,500 come May 17.
“It’s eye-popping and shocking,” Fallon said. “I can make it happen, but it's not going to be in one lump sum, because I don't have that. Even making it happen is going to be a real big burden on me.”
Fallon is a personal trainer and when New York went on pause, so did his clients.
“Working at a gym, that was like one of the first places people were pretty wary of going into," Fallon said.
It took Fallon a while to start receiving unemployment benefits due to backlogs and errors in the system.
And now he has to be concerned about having to pay potentially $2,500 in taxes while still trying to build back his clients.
“Most of us have jobs or were doing well and didn't want to be on it,” Fallon said. “But we had to be on it, because even if our employers did help us for months, at some point they couldn't foot that bill. And that's what these things are for. We shouldn't be negatively affected because we were affected by something like COVID that no one's ever really been through before and it's not a normal thing.”
Lawmakers on both sides of the aisle have been calling for changes to the state’s tax law in order to exclude income taxes on unemployment benefits.
Although these benefits have been taxed for the last 50 years, state Sen. Jim Tedisco says 2020 was not a typical year. Businesses had no choice but to close and New Yorkers struggled for months to even gain access to the unemployment system.
“When we finally got them into the system, it was a question of getting the checks out of the system,” Tedisco said. “And when they finally got that solidified, now they want to tax that money and take some of it back. I think the federal government got it right this time. We should follow their suit.”
Sen. Tedisco is co-sponsoring a bill that would exclude from state income taxes up to $10,200 of unemployment compensation benefits. The bill is sponsored by Democratic Senator Simcha Felder and is co-sponsored by nine other Democrats, along with numerous Republicans.
One of the bill sponsors includes Senate Deputy Majority Leader Mike Gianaris, the second top Democrat in the Senate.
However, the bill has not moved out of committee.
A spokesperson for the Division of Budget, Freeman Klopott said that the federal government originally told states that they were not allowed to reduce taxes if they accepted federal aid.
“In the final weeks of budget negotiations, the state sought clarity from Washington on its ability under that provision to reduce taxes on unemployment insurance benefits, and received it on April 7 as the Legislature was casting its final votes on the budget, making it too late to respond to the change,” Klopott said.
Sen. Tedisco criticized this lack of action.
“To suggest you can’t do something after the budget is ridiculous,” Tedisco said.