Congress moves to exempt unemployment benefits from federal income tax
H.R. 2655 — To amend the Internal Revenue Code of 1986 to sunset the Federal income tax on unemployment compensation. · Filed by Shri Thanedar (D-MI) · 4 cosponsors · Introduced Apr 3, 2025 · Referred to committee
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What it does
This bill eliminates federal income tax on unemployment compensation starting in 2025. Currently, unemployment benefits are counted as taxable income; this bill removes that requirement, allowing recipients to keep their full unemployment payments without federal tax liability.
Why we flagged it
The bill's sole operative mechanism is a tax exemption for unemployment compensation recipients. It is a straightforward income-tax carve-out benefiting a specific class of taxpayers during periods of joblessness.
What the text implies
- Eliminates federal revenue from unemployment-benefit taxation, reducing Treasury receipts by an estimated $2–4 billion annually (depending on unemployment rate and benefit levels), with no stated offset or appropriation.
- May increase state-level tax liability in states that conform their tax code to federal IRC §85; states would need separate legislation to decouple and avoid taxing unemployment benefits.
- Creates a permanent structural tax expenditure (foregone revenue) rather than a temporary relief measure, locking in the benefit indefinitely unless Congress acts to reinstate taxation.
Section numbers refer to the bill text the analysis read — linked under Primary records below.
Who it affects
Unemployed workers receive a direct tax cut on benefits they depend on during job loss, increasing their take-home income when they are most financially vulnerable. The benefit flows entirely to individuals receiving unemployment compensation, with no offsetting cost to other citizens.
Who stands to gain
- Individuals receiving unemployment compensation
Named in the bill
Internal Revenue Code of 1986, IRC Section 85, U.S. Department of Labor, State unemployment insurance programs
Where it stands
4 cosponsors: 4 Democrats.
- Apr 3, 2025 — Introduced · Congress.gov: “Introduced in House”
- Apr 3, 2025 — Referred to House Committee on Ways and Means · Congress.gov: “Referred to the House Committee on Ways and Means”
Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.
How this was measured
Analysis — Quorum's AI read the bill text published by Congress.gov (472 characters) on May 21, 2026. Section numbers in the findings refer to that text, linked below; transparency and hidden-provision scores are compared against the median of 16,222 analysed bills.
Status and sponsors — Congress.gov's bill record — actions, committee referrals and cosponsors — loaded nightly. The timeline shows status changes, not every procedural action.
As of — page rendered 2026-10-20.
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