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Senate Passes COVID Bill With Exemption for Unemployment Income

Posted on Mar. 8, 2021

The Senate voted 50 to 49 to pass a $1.9 trillion coronavirus relief bill that includes a provision that would make the first $10,200 in unemployment insurance benefits tax-free.

The amended legislation (H.R. 1319) will now return to the House for consideration. Lawmakers hope to finish the bill and have it signed into law before unemployment benefits expire on March 14. House Majority Leader Steny Hoyer, D-Md., said in a March 6 statement that the House will bring the bill to the floor on March 9.

The most significant change in the package came after Sen. Joe Manchin III, D-W.Va., expressed concern that the bill's $400-per-week federal payments for unemployed individuals would be a disincentive to work. Ultimately Manchin agreed to support the legislation with an amendment that would reduce the weekly federal unemployment payments to $300 and extend the benefits through September 6. The measure would also make the first $10,200 of unemployment insurance received in 2020 nontaxable income. 

Although there was enough support to pass the legislation, some lawmakers still worried that making part of the unemployment payments nontaxable income comes too late in the filing season to be helpful.

The rest of the Senate amendment to the House-passed American Rescue Plan Act of 2021 didn't change despite Republicans’ effort to advance numerous amendments throughout the late evening of March 5 and morning of March 6. 

The Senate's version of the bill would temporarily expand and increase the child tax credit and expand use of the employee retention credit to new small business start-ups. The Senate version would also lower the annual income full phaseout threshold for the $1,400 rebate checks from $100,000 to $80,000 for single filers and from $200,000 to $160,000 for married couples filing jointly.

Another change would deny a deduction for compensation in excess of $1 million for the eight highest-paid employees — plus the CEO or CFO — of publicly traded companies. Under current law, the deduction is denied only for the three highest-paid employees.

Senators amended the bill to include language eliminating the taxation of student loan forgiveness through 2025, a provision estimated to reduce federal revenue by $44 million over 10 years.

Earlier March 5, lawmakers rejected by a vote of 42 to 58 a provision introduced by Sen. Bernie Sanders, I-Vt., to increase the minimum wage to $15 an hour. Democrats dropped the provision from their stimulus bill after the Senate parliamentarian ruled that it would violate the budget reconciliation rules.

Correction, March 11, 2021: The bill would eliminate the taxation of student loan forgiveness. 

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