This editorial was originally published Sunday on KPC News.
When the Legislature was entering its final days, Indiana lawmakers were particularly proud of themselves for providing record funding for education.
As we all know, or at least should, this record increase in funding came from the American Rescue Plan, an act of Congress signed into law by President Joe Biden and not supported by Republicans. It was the law that provided nearly $2 trillion in funding for a variety of programs, including $1,400 stimulus checks and billions of dollars of funding for state and local government.
Indiana, like all other states, received huge windfalls. Indiana ended up flush with cash and the Legislature used this money to shore up programs.
Happy days in Indianapolis.
Unfortunately, our lawmakers decided the windfall would not be shared with those who were unfortunate enough in 2020 to lose their jobs for whatever reason, but most likely due to the downturn in the economy because of the COVID-19 pandemic. This means people who received unemployment compensation through standard and supplementary programs through the Coronavirus Aid, Relief and Economic Security Act — approved by Congress and signed by President Donald Trump last year — will not receive the same treatment with Indiana tax law as they do with federal tax law.
Unemployment compensation is taxable income for 2020 in Indiana but not with federal tax returns for most earners.
If your modified adjusted gross income is less than $150,000, the American Rescue Plan enacted on March 11 excludes from income up to $10,200 of unemployment compensation paid in 2020. That means you don’t have to pay tax on unemployment compensation of up to $10,200, information from the IRS says.
On April 22, the Legislature passed an update to Indiana’s conformity to the Internal Revenue Code, but specifically decoupled from certain provisions of the code, and Gov. Eric Holcomb signed this into law on April 29.
As a result, you cannot apply the same federal unemployment compensation exclusion on your 2020 Indiana individual income tax return and that income must be added back in. However, you may be eligible for a deduction that could reduce or even eliminate any state tax due on your unemployment compensation.
For Indiana taxpayers, this means some people who were looking at receiving a refund from their taxes are now having to pay additional state income tax.
With the billions coming into the state’s pocketbook, the Legislature should have found it in their collective hearts to give the less fortunate a break. Unfortunately, many people have taken the stance that people intentionally became unemployed so they could receive unemployment checks plus the additional $600 a week under the CARES act and the $300 a week under the American Rescue Plan.
While some people might choose to remain unemployed, an individual can’t just voluntarily go on unemployment. There are rules to follow in order to receive benefits.
In Indiana we are seeing employment rebound to near pre-pandemic levels. We’re not there, but we’re getting there. In reports released Friday, it was estimated that job growth this year could lead to U.S. unemployment of only 4.3% by the year’s end.
The stimulus checks and supplemental unemployment benefits have been extremely helpful for individuals and the economy, but it does not mean people have become flush with cash. Taxing unemployment at a time when Indiana and America are recovering from a severe economic downturn is not a positive move.
This legislative session has left many observers scratching their heads in wonderment over certain decisions. This is yet another.