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DE Passes Bill Exempting Unemployment Benefits from Taxable Income

February 8, 2021

On February 8, 2021 Governor John Carney signed House Bill 65 (the Bill) into law.  This Bill effectively exempts any unemployment benefits paid in 2020 from being considered taxable state income.  In addition, it freezes the assessment rates and gives the head of the Delaware Department of Labor more leeway to adjust to the continuing escalated unemployment rate, as necessary.

Form 1099-G, which reports benefits paid in 2020, were mailed out the beginning of February but may take up to two weeks for delivery.  These benefits will still need to be reported as non-taxable income on your Delaware Income Tax Return, and recorded as income on the Federal tax return, as they are still taxable at the Federal level.
This measure freezes the 2021 new employer assessment rate, the average industry assessment rate, and the average construction industry assessment rate at the 2020 rates.  This is an effort to help new businesses during their first two years, since they are taxed based on the average unemployment rate rather than an individualized rate.  The freeze will prevent the average unemployment rates from increasing due to the unprecedented unemployment rate during the last year.  

Additionally, the Bill allows the head of the Delaware Department of Labor to issue an emergency rules they deem necessary until March of 2022.  This will help Delaware react quickly to any continuing effects on unemployment and help execute any federal programs that provide unemployment benefits because of COVID-19 restrictions. 

Historically, when unemployment rates start to climb swiftly and significantly, the Federal government allows Delaware to pay extended benefits to those impacted for a period of 13 weeks.  At that time, they must wait 13 weeks before it can start paying extended benefits again.  This Bill allows the State to pay extended benefits until mid-April with no waiting period if the unemployment rate climbs past its current levels.

The COVID-19 pandemic has caused over 160,000 people to file for unemployment in Delaware as a result of businesses having to shut down or cut back on their staff.  State officials predict that this Bill will save taxpayers around $21,000,000 this year.

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