For the second year in a row, Delaware taxpayers will be exempt from paying state income taxes on their unemployment benefits.
Gov. John Carney on Thursday signed legislation introduced by Rep. Ed Osienski on the 2021 tax break. Osienski, a Newark Democrat, sponsored a similar bill last year.
Since March 2020, Delaware has seen unprecedented unemployment levels. Between March 2020 and last December, the Delaware Division of Unemployment paid 107,195 people more than $1.5 billion in benefits. In 2019, the state paid out $67 million, according to a press release about the bill.
While the economy and daily life have tried to creep back to normal, unemployment persisted through last year. The state received 103,380 unemployment claims in 2021 compared to 175,387 claims in 2020.
This year’s tax exemption is expected to cost the state about $25 million over two years, according to an official financial analysis of the bill.
Delaware started processing income tax returns on Jan. 31. The deadline to file personal income taxes in Delaware is April 30.
How to exempt your benefits
Residents filling out a Delaware income tax return should put the amount of unemployment benefits that they received in 2021 on line 7 of their tax form.
Nonresidents filling out a Delaware income tax return should put the amount of unemployment benefits that they received in 2021 on line 25.
Unemployment benefits have to be included in adjusted gross income and will still be taxed at the federal level.
The Division of Unemployment has mailed out 1099-G tax forms to report benefits paid in 2021. Electronic copies are not available, according to a Labor Department spokesperson.
How much money will this save me?
Your tax savings will depend on how much money you made on unemployment and how much money you made in total income last year.
Had lawmakers not made the exemption, the state would have taxed your unemployment benefits at the tax rate of your total income from last year. Your total income includes your unemployment benefits.
Delaware’s income tax brackets are currently at these rates:
- 2.2% on income between $2,000 and $5,000
- 3.9% on income between $5,000 and $10,000
- 4.8% on income between $10,000 and $20,000
- 5.2% on income between $20,000 and $25,000
- 5.55% on income between $25,000 and $60,000
- 6.6% tax on income over $60,000
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Help for businesses
The bill also establishes the 2022 new employer assessment rate, average industry assessment rate and average construction industry assessment rate at the same rate as 2020. This is to avoid an increase in these rates as a result of the increase in unemployment claims. Lawmakers also implemented this freeze on 2021 rates.
For the first two years of being registered, businesses are taxed based on the average unemployment tax rate instead of their individual rate. The state does not want those employers to have to pay the price of the overall increase in claim volume, officials say.
Still have questions about the exemption?
More information will be posted at revenue.delaware.gov.
You can also call the Delaware Department of Revenue Georgetown Public Service group for assistance at 302-856-5358.
Bill also gives Labor Department extended emergency authority
The bill would also allow the head of the Labor Department to issue emergency rules until December 2022 to deal with the pandemic’s effect on unemployment and implement federal programs that provide unemployment benefits in response to COVID-19.
The department had this ability last year, thanks to the exemption bill lawmakers passed in 2021. The authority was set to expire in March. The department issued several emergency rules last year, including reinstating a requirement in June that beneficiaries actively search for work.
Officials are not currently considering emergency rules for 2022, according to its spokesperson Alejandro Bodipo-Memba.
The department requested the emergency authority due to the uncertainty of the pandemic’s impact on the unemployment insurance program and the federal government’s ability to issue new rules when state lawmakers are not in session, Bodipo-Memba wrote in an email.
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Sarah Gamard covers government and politics for Delaware Online/The News Journal. Reach her at (302) 324-2281 or sgamard@delawareonline.com. Follow her on Twitter @SarahGamard.
