To amend the Internal Revenue Code of 1986 to sunset the Federal income tax on unemployment compensation.
- Bill Number
- H.R. 2655
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-04-03: Referred to the House Committee on Ways and Means.
- Last Updated
- 2025-05-09T17:51:29Z
AI-Generated Summary
H.R. 2655: Summary of Legislation
Purpose
This bill seeks to eliminate the federal income tax on unemployment compensation (benefits paid to individuals who lose their jobs) for amounts received after December 31, 2024. It aims to provide tax relief to unemployed workers by excluding these benefits from taxable income.
Key Provisions
- Amendment to Tax Code: The bill modifies Section 85 of the Internal Revenue Code of 1986, which currently requires unemployment compensation to be included in a person's gross income (the total income subject to tax).
- Termination Clause: It adds a new subsection (c) stating that Section 85 will no longer apply to taxable years beginning after December 31, 2024.
- Effective Date: The change applies to unemployment benefits received after December 31, 2024, in tax years ending after that date.
Significant Changes to Existing Law
- Under current law, unemployment compensation is treated as taxable income, similar to wages, and recipients must report it on their federal tax returns.
- This bill "sunsets" (permanently ends) that taxation, making unemployment benefits fully tax-free at the federal level starting in 2025. It does not affect state taxes, which may still apply depending on the state.
Potential Impacts
- On Citizens: Unemployed individuals will retain more of their benefits as take-home pay, potentially easing financial hardship during job loss. This could benefit millions of Americans who file taxes on unemployment income annually.
- On Government Agencies: The Internal Revenue Service (IRS) will no longer collect taxes on these benefits, leading to reduced federal revenue (estimated impacts would depend on economic conditions but could be significant during recessions). Other agencies, like the Department of Labor, which oversees unemployment programs, may see indirect effects through unchanged benefit administration.
- On International Relations: No direct impacts, as the bill focuses solely on domestic U.S. tax policy.
Main Stakeholders Affected
- Unemployed Workers and Low-Income Taxpayers: Primary beneficiaries, as they will no longer owe federal taxes on benefits, which are often a key income source during unemployment.
- Federal Government and Taxpayers: The U.S. Treasury and broader taxpayers may face revenue shortfalls, potentially requiring budget adjustments or increased taxes elsewhere.
- Employers and State Governments: Indirectly affected, as states administer unemployment insurance and may continue taxing benefits, but federal changes could influence overall program funding dynamics.
Notable Legal, Constitutional, or Political Implications
- Legal: This is a straightforward amendment to the tax code, requiring no new regulations beyond IRS updates to tax forms and guidance. It aligns with Congress's authority under Article I, Section 8 of the U.S. Constitution to levy and regulate taxes.
- Constitutional: No apparent challenges, as it simply removes a tax rather than imposing one, avoiding issues like equal protection or due process concerns.
- Political: As a tax relief measure introduced by Democratic representatives, it could appeal to efforts supporting working-class families but may spark debate over federal revenue loss and fiscal responsibility. If enacted, it would represent a policy shift toward treating unemployment benefits more like non-taxable aid, similar to certain disaster relief payments.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (4)
Rep. Johnson, Henry C. "Hank" [D-GA-4], Rep. Foushee, Valerie P. [D-NC-4], Del. Norton, Eleanor Holmes [D-DC-At Large], Rep. Bynum, Janelle [D-OR-5]
Recent Actions
- 2025-04-03: Referred to the House Committee on Ways and Means.
- 2025-04-03: Introduced in House
- 2025-04-03: Introduced in House
Bill Versions
- To amend the Internal Revenue Code of 1986 to sunset the Federal income tax on unemployment compensation. — issued 2025-04-03 — PDF (2 pages)