Bill Proposes Ending Federal Income Tax on Unemployment Benefits Starting in 2025

A proposed change to the tax code aims to stop Uncle Sam from taking a cut of unemployment checks. This bill amends Section 85 of the Internal Revenue Code, effectively eliminating the federal income tax on unemployment compensation. If passed, this change would apply to benefits received in taxable years beginning after December 31, 2024.

Your Unemployment Check, Untaxed

Currently, the money you get from unemployment insurance is considered taxable income by the federal government. Think of it like wages from a job – you owe federal income tax on it. This bill flips that switch. Starting in 2025, if you receive unemployment benefits, you wouldn't have to worry about setting aside money for federal taxes on that income or having it withheld. The amount you receive would be yours, free from federal income tax obligations.

What This Means for Your Budget and Tax Forms

The most direct impact? More money in your pocket during a period when you're likely counting every dollar. For someone receiving benefits, not having to account for federal taxes on that income could provide significant financial relief. It also simplifies things come tax time. Recipients would no longer need to report unemployment compensation as federally taxable income, potentially making filing easier. This change specifically targets amounts received after December 31, 2024, for tax years ending after that date, meaning it wouldn't affect taxes on benefits received before then.