Good News! Unemployment Benefits are taxable.
Millions of Americans are finding out how stressful and confusing it is to lose employment or have a sudden reduction in income. To supplement this unexpected drop in revenue, many eligible Americans are receiving unemployment compensation. Although this payment is not a full wage replacement, unemployment insurance is approximately 60-70% of your wages. Many people do not realize that this compensation is considered taxable benefits by law and must report this on their 2020 Personal federal income tax return. Tax & Accounting “Taxable benefits include any special unemployment compensation authorized under the Coronavirus Aid Relief, and Economic Security (CARES) Act, enacted Spring 2020.” Although withholding is voluntary, “federal law allows any recipient to choose to have a flat 10% withheld from their benefits to cover part or all of their tax liability.” If a recipient doesn’t choose to withhold or withholding is not enough, they can make quarterly estimated tax payments instead. Beneficiaries returning to work before the end of 2020 should make sure that they are having enough tax taken out of their pay.
“In January 2021, unemployment benefit recipients should receive a Form 1099-G, Certain Government Payments from the agency paying the benefits. This form will show the amount of unemployment compensation they received during 2020 and any federal income tax withheld.” Taxpayers must report this information along with their W-2 on their federal tax return. Remember, if you withhold taxes now, you can avoid a larger than expected tax bill in April.
For this reason, if you find yourself unemployed, Gordon Frasier and Associates are here to help you. We can assess, advise, and help strategize what steps to take. Contact Gordon Frasier and Associates. We are here to assist with your taxes and financial planning and help you avoid unexpected shocks at tax time. In strict compliance with the Covid-19 safety protocol, we require masks and social distancing guidelines for any in-person meetings. If you feel more comfortable, we also provide our clients with virtual assistance over the phone or online.
You can read more about Taxable unemployment benefits by clicking here: https://www.irs.gov/newsroom/irs-unemployment-compensation-is-taxable-have-tax-withheld-now-avoid-tax-time-surprise