It’s common knowledge that the coronavirus pandemic has had devastating effects on the American economy. The devastation has spanned a year and two presidencies, both of whom tried to dole out financial relief in several different forms to American citizens and their businesses in order to support the economy during this devastating time.
A record number of people are out of work due to one in five businesses closing for pandemic related reasons, and as a result, many Americans were eligible for and claimed unemployment benefits. These benefits provided stimulation to the economy and allowed citizens to maintain their way of life when their normal methods of financial gains are being blocked for the foreseeable future by COVID-19.
A year into the pandemic has allowed a record number of Americans to claim unemployment benefits, and this presented a unique challenge regarding how those said benefits would behave during the tax process, which is approaching at this time.
To solve this, President Joe Biden included updated tax law on his historical American Rescue Plan legislation. Under this new law, the first $10,200 of unemployment benefits are exempt from being taxed if your household makes less than $150,000.
This is a huge relief to many people who received unemployment funds and would be devastated by the taxes they would have to pay. However, not everyone who meets these requirements may be out of the woods just yet.
The way U.S. tax laws works are not monolithic and states can vary in their adherence to federal tax laws on certain occasions. Twenty out of 50 states use what is called ‘rolling conformity’ which means their laws change automatically to match what the federal laws are.
New York previously had rolling conformity, but the state began to disengage from this practice in 2018 when former President Donald Trump began to pass legislation detrimental to their economy. Due to this practice, New York will not be automatically eligible for the $10,200 tax exemption for unemployment benefits.
This decision received an outcry from many New Yorkers, including myself. My financial experience during the pandemic was one of fear and anxiety for my future. Being able to claim unemployment allowed me to create a nest egg for my future and make up for lost wages. It is more than that, though — it assured me that I will be able to have a future.
The current state of N.Y. tax laws on unemployment funds is devastating for people, especially middle- and working-class people who simply cannot spare the money to pay these taxes. People right now are barely able to afford basic necessities and rent. New York needs to stop looking at the tax bill through elitist-colored glasses and see to the needs of the everyday New Yorkers who get by despite living in a state with obscenely high taxes as it is.
Luckily, there is hope on the horizon. State Senator James Tedisco has introduced a bill to push back the tax filing date to May 17 from its original date of April 15 and also make N.Y. residents eligible for the tax exemption they are entitled to under the ARP legislation. The bill is expected to pass, and New Yorkers can rest easy.