H.R.2655 - To amend the Internal Revenue Code of 1986 to sunset the Federal income tax on unemployment compensation. (119th Congress)
Summary
H.R.2655 proposes to amend the Internal Revenue Code of 1986 to sunset the federal income tax on unemployment compensation. Specifically, it aims to terminate the inclusion of unemployment compensation in gross income for taxable years beginning after December 31, 2024. The bill was introduced in the House of Representatives on April 3, 2025, and referred to the Committee on Ways and Means.
If enacted, this bill would effectively eliminate the federal income tax on unemployment benefits received after the specified date. This change would directly affect individuals who receive unemployment compensation.
The bill's primary goal is to provide financial relief to those receiving unemployment benefits by reducing their tax burden.
Expected Effects
The primary effect of H.R. 2655 would be to reduce the tax burden on individuals receiving unemployment compensation. This would increase their disposable income during periods of unemployment.
This change could also have a minor impact on federal tax revenues, as the government would no longer collect income tax on these benefits. The magnitude of this impact would depend on the number of individuals receiving unemployment compensation in a given year.
In summary, the bill aims to provide direct financial relief to unemployed individuals by eliminating federal income tax on their unemployment benefits.
Potential Benefits
- Increased disposable income for unemployed individuals: Eliminating the tax on unemployment benefits would leave more money in the pockets of those who have lost their jobs.
- Simplified tax filing for the unemployed: Individuals would no longer need to calculate and pay federal income tax on their unemployment compensation.
- Potential stimulus to the economy: Increased disposable income could lead to increased spending, providing a small boost to the economy.
- Reduced financial stress during unemployment: Lowering the tax burden can alleviate some of the financial stress associated with job loss.
- Fairness: Some argue that taxing unemployment benefits is unfair, as these benefits are intended to provide a safety net during periods of hardship.
Potential Disadvantages
- Potential reduction in federal tax revenue: Eliminating the tax on unemployment benefits could lead to a decrease in federal tax revenue, potentially impacting government programs.
- Complexity in tax code: While simplifying for some, it adds another specific exception to the tax code, potentially increasing overall complexity.
- Potential for abuse: While unlikely, eliminating the tax could incentivize some individuals to remain on unemployment longer than necessary.
- Regressive impact: While intended to help low-income individuals, the benefits of this tax cut may disproportionately benefit higher-income earners who receive larger unemployment benefits.
- Uncertainty about long-term effects: The long-term economic and social impacts of this change are difficult to predict with certainty.
Most Disadvantaged Areas:
Constitutional Alignment
The bill appears to align with the general welfare clause of the Constitution (Preamble), as it aims to provide financial relief to unemployed individuals. However, the Constitution does not explicitly address the taxation of unemployment benefits.
Article I, Section 8, Clause 1 grants Congress the power to lay and collect taxes. This bill proposes to limit that power by exempting unemployment compensation from federal income tax. The constitutionality of such a limitation is generally accepted, as Congress has broad authority over tax policy.
There are no apparent constitutional conflicts arising from this bill. It falls within the scope of Congress's legislative powers and does not infringe upon any individual rights or liberties.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).