Indiana to reinstate extra unemployment benefits. Will 25 other states have to follow?

Indiana workers won a lawsuit against the governor for ending pandemic unemployment compensation early, resulting in a ruling that requires the state to continue paying the bonus federal benefits.

Oscar Gonzalez, Laura Michelle Davis
June 29, 2021


Less than a week after ending the enhanced federal unemployment early, a state court judge ruled that Indiana Gov. Eric Holcomb must continue participating in the programs.

Among 26 other states, Indiana chose to stop the enhanced benefits — which include $300 weekly bonus checks and coverage for freelancers — this summer, before their federal expiration on Sept. 6. The ruling stated that the governor’s decision had violated state law and that it was causing the plaintiffs “irreparable harm” by eliminating the recipients’ ability to pay rent, basic medical expenses and child care.

Over the weekend, 10 more states stopped paying the extra jobless aid, totaling 22 states, which affects the long-term unemployed and others. Governors have claimed that the supplemental money prevents workers from filling open positions, but job searches haven’t picked up in the states that already ended benefits. The White House has said states can make their own decisions and that the federal government cannot intervene.

But could other state decision-makers conclude it’s a violation of state law? We’ll continue to update this story as we receive more information. In the meantime, you may be interested to know that the IRS has been sending refunds to people who were taxed on their 2020 unemployment benefits, and some states are offering a back-to-work bonus to fill jobs. Here’s more information about the advanced child tax credit payments starting July 15 and stimulus “plus-up” payments.

What we know about the Indiana ruling on unemployment today

In May, Holcomb announced Indiana would stop distributing enhanced unemployment benefits on June 19, claiming the decision would help fill open jobs. Indiana joined some two dozen (mostly Republican-led) states that made similar announcements. Roughly 230,000 jobless workers in Indiana were affected by the change.

The lawsuit filed against Holcomb in Marion County’s Superior Court argued that Indiana is required to procure all federal insurance benefits to residents and that the governor’s actions harmed those who are trying to survive the pandemic. Superior Court Judge John Hanley’s decision in favor of the plaintiff requires the state to continue the enhanced benefits as part of the American Rescue Plan.

The governor’s office said it is considering an appeal.

The 26 states canceling federal unemployment programs all have different termination dates.

Citing labor shortages, state governors say pandemic-related unemployment benefits produce limited incentives for workers to take jobs. Many economists and analysts disagree, noting that several factors are preventing people from finding suitable work — including low wages, lack of child care and fear of contracting COVID-19.

Here are the new end dates for the 26 states announcing an early halt to enhanced jobless benefits. (We kept Indiana on this list, though the recent ruling means that those benefits will be reinstated.) If your state is not listed below, those benefits are set to expire on Labor Day (Sept. 6).

EARLY END DATES FOR ENHANCED JOBLESS BENEFITS IN 26 STATES

Expiration State

June 12 – – – – Alaska, Iowa, Mississippi, Missouri
June 19 – – – – Alabama, Idaho, Indiana*, Nebraska, New Hampshire, North Dakota, West Virginia, Wyoming
June 26 – – – – Arkansas, Florida, Georgia, Ohio, South Carolina, South Dakota, Texas, Utah
June 27 – – – – Montana, Oklahoma
July 3 – – – – Maryland, Tennessee
July 10 – – – – Arizona
July 31 – – – – Louisiana

Sept. 6 All other states not listed above, and those states* affected by subsequent decisions

Some of those states, including Arizona, Montana, New Hampshire and Oklahoma, will instead offer financial incentives for individuals to find work. Louisiana Gov. John Bel Edwards said his reason for ending the benefits is to increase the maximum state unemployment benefit to $275 a week starting in 2022.

States that are not ceasing their participation in the enhanced federal programs could reimpose stricter rules — many of which were suspended during the pandemic — for those collecting unemployment. Hawaii, for example, is requiring jobless workers prove they are actively searching for work.

Other states, like Colorado and Connecticut, are continuing the $300 payments but offering their own new-job bonuses. New York may also join in implementing signing bonuses for those who take and hold a job. Since each state has varying requirements, check with your state for rules.

White House response to states ending unemployment before the cutoff
Labor Department officials say their hands are tied and can’t counter decisions by state governors to stop participation in the national unemployment programs.

Moreover, White House officials have indicated they will not continue the enhanced jobless benefits past September in the other states, saying they were intended to be temporary. In his latest speech on June 4 on May’s jobs report, Biden underlined that “it makes sense” for those supplemental unemployment benefits “to expire in 90 days.”

In remarks on the economy in May, Biden had reaffirmed the guidelines for receiving federal unemployment insurance: “We’re going to make it clear that anyone collecting unemployment who is offered a suitable job must take the job or lose their unemployment benefits.” According to the Department of Labor, if you turn down a suitable job, you can be denied unemployment benefits: “You must be able, ready and willing to accept a suitable job.”

Details about PUA benefits for the self-employed and freelancers

The March extension of unemployment benefits also applied to Pandemic Unemployment Assistance: aid for workers who aren’t normally eligible for unemployment insurance. It covers freelancers, gig workers, independent contractors and part-time workers.

Most of the states that are cutting off the enhanced benefits are also stopping PUA and terminating the Pandemic Emergency Unemployment Compensation program. Online groups calling to extend pandemic unemployment programs through the crisis offer more information. The Department of Labor website tells individuals to contact their state’s unemployment insurance office for more details about these benefits.

In a May 13 letter, Sen. Bernie Sanders appealed to the federal government to continue providing pandemic unemployment assistance to workers. Saying that jobless Americans will plunge into poverty in states slashing federal aid, he argued, “The PUA program has served as a backstop for our broken and outdated unemployment insurance (UI) system for over a year.”

003-cash-broke-poor-money-stimulus-check-congress-blender-fence-waste-delay
If you’re an independent contractor, you may lose unemployment benefits entirely — or not, depending on your state.

More to know about the extra $300-per-week UI bonus
Unless your state is one of those that have opted out (see chart above), the enhanced unemployment benefits will continue until Labor Day, Sept. 6, granting a $300 weekly federal bonus on top of what the state pays. That extra money could allow unemployment recipients to receive a total of up to $7,500 for the 25 weeks spanning from March to September.

While unemployment rates are lower than they were at the start of the pandemic last year, as of this April some 16 million Americans (one in 10 workers) were still receiving some kind of jobless aid. According to the Bureau of Labor Statistics, more than one in four jobless Americans have been without unemployment for over a year.

While members of Congress had earlier pushed for the additional $300 to continue through the pandemic, many Republican and Democratic lawmakers are outright opposed or increasingly skeptical of the added benefit.

Given Biden’s most recent remarks, it’s unlikely that those enhanced benefits will be renewed after Labor Day, but we will continue to follow the economic rebound and the debate over unemployment programs over the summer.

First, it’s important to know that the IRS treats unemployment insurance as income, which means it’s subject to taxation. In most cases, the state can withhold taxes like a typical paycheck. However, it’s estimated that millions of unemployment benefit recipients had no taxes withheld, which means they would’ve owed a substantial amount when filing tax returns.

To counter that, the March stimulus law included a tax exemption of $10,200 (or up to $20,400 for those filing jointly) for those with an adjusted gross income under $150,000 during 2020. That means the first $10,200 of unemployment insurance will not be taxable — so if someone received $20,000 in benefits in 2020, they would only be taxed on $9,800 of it. The $10,200 is the amount of income exclusion for single filers, not the amount of the refund. (The amount of the refund will vary per person.)

Some states are not providing a tax break. According to a chart by the tax preparation service H&R Block, 11 states aren’t offering the tax break: Colorado, Georgia, Hawaii, Idaho, Kentucky, Minnesota, Mississippi, New York, North Carolina, Rhode Island and South Carolina. Other states, like Indiana and Wisconsin, are only offering a partial tax break.

Some 13 million taxpayers who received jobless benefits last year and paid taxes on the money are eligible, though not everyone will receive a refund depending on past-due debt. We explain what you need to know here, including how to look for that refund on your tax transcript.

IRS timeline for sending out unemployment tax refunds
After some initial delays, more single filers began seeing deposits in their checking accounts starting May 28, with 2.8 million refunds going out the first week of June. As of June 9, over 1.2 million direct deposit payments had gone out in the two previous weeks, adding up to over $2.2 billion. The IRS said the next set of refunds would go out mid-June, but those are yet to be confirmed — although some Twitter users reported receiving their refunds. More complicated returns will be processed later, with refunds being issued over the summer.

The IRS has issued instructions on how to enter the exemption on tax forms. People who already filed their taxes this year without the exemption will have their returns automatically recalculated by the IRS. While the IRS has said that taxpayers do not need to file an amended federal tax return to get their tax break, a handful of states are requiring taxpayers to file an amended state tax return to get a state refund. Here’s how to find out your state’s rules.

Indiana to reinstate extra unemployment benefits. Will 25 other states have to follow?

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