Tens of thousands of Mainers who received unemployment payments last year could be in line for a one-time state tax exemption.

More than 163,000 Maine workers – almost a quarter of the state’s civilian workforce – received unemployment insurance payments in 2020, a historic level of joblessness prompted by the economic downturn that started during the early days of the coronavirus pandemic in the U.S.

Income from jobless payments is typically taxable at the state and federal level. But the American Rescue Plan Act passed by congressional Democrats and the Biden Administration included a one-time break on those taxes, and the state followed suit.

People who earned $150,000 or less can receive an exemption on their unemployment payments up to $10,200.

Almost 86,000 people received at least that amount last year, according to Maine Revenue Services. The state tax break mirrors the federal exemption on jobless payments.

The state’s income tax deadline was extended to May 17, so some of those in line to receive benefits have not filed their returns yet and can claim the exemption on their forms.


But an unknown number who received unemployment have already filed their taxes, without factoring in the exemption. That means they will have to file an amended return with an adjusted 2020 income acquired from the IRS to receive the tax break. An amended return can be filed within three years of the due date.

Maine Revenue Services last week sent tens of thousands of postcards to those who received jobless benefits last year reminding them of the exemption. Maine Department of Labor has also informed people through email alerts.

“We know that taxes can be complicated enough without taking into consideration the anxiety of a public health crisis. That is why Governor Mills has instructed Maine Revenue Services to be sure we are providing first-class service to filers during a tax season that is unlike any other,” said Maine Revenue Services Executive Director Jerome Gerard in a statement.

The unemployment exemption is likely to create a $44 million state revenue loss, said Department of Administrative and Financial Affairs Communications Director Kelsey Goldsmith.

Maine might be able to cover some of that shortfall with federal money it expects to receive from the American Rescue Plan Act.

The U.S. Treasury Department last week announced that states could use their allocation to cover tax breaks adopted for unemployment pay and business earnings from forgiven Paycheck Protection Program loans. Maine state government could receive more than $1 billion from the act.

“The Paycheck Protection Program and unemployment benefits sustained Maine businesses, Maine people, and Maine’s economy during the pandemic. When the Federal government provided tax relief on these benefits, it was a welcome step forward, but it also inadvertently put state governments, like ours, in a tough position,” Gov. Janet Mills said in a statement.

“The flexibility in the use of these new federal funds will be helpful as my Administration prepares proposals for the Legislature’s consideration and as we look to revitalize our economy and provide critical services to Maine people.”

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