Summary

Removes unemployment compensation from federal taxable income for tax years beginning after December 31, 2024. Amounts received after that date, in taxable years ending after that date, would not be included in gross income for federal income tax purposes. The change is achieved by amending 26 U.S.C. § 85 to repeal the existing subsection that required inclusion of unemployment compensation and replacing it with a rule that ends that inclusion for the specified tax years and payments.

Key Points

• Removes federal income taxation of unemployment compensation for tax years beginning after Dec 31, 2024.
• Operates by amending 26 U.S.C. § 85 to terminate the current inclusion rule.
• Applies to unemployment amounts received after Dec 31, 2024, in taxable years ending after that date.
• Increases after-tax income for people who receive unemployment benefits in affected years.
• May reduce federal income tax revenues beginning in tax year 2025.
• Could require IRS guidance and changes to taxpayer reporting and return preparation.
• State tax treatment may differ because this is a federal tax code change, not a state mandate.
• Could affect calculations for certain federal or state programs that rely on federal income measures.

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