YOUR TAXES WHILE RECEIVING UNEMPLOYMENT
Your taxes while receiving unemployment. Millions of Americans have lost their job during the COVID-19 outbreak and are relying on unemployment benefits as they pay their bills and re-start their career. That’s a serious challenge they face right now. Without some planning, they could also face a future problem–an unanticipated, unbudgeted tax bill in 2021. “there will definitely be some people who are going to be surprised at tax time next year and I’d like to minimize that.” –Michele Evermore, senior policy analyst at the National Employment Law Project, an advocacy organization for workers. Here’s why Evermore and other observers are concerned: though the Internal Revenue Service counts unemployment benefits as taxable income, people getting that money may not be withholding a portion for federal income taxes. They may not think to withhold for income tax or they may not be willing to withhold because they have to maximize their unemployment check now. Many of these individuals will need IRS Tax Resolution. Your taxes while receiving unemployment.
More than one-third of taxpayers (37%) didn’t know jobless benefits are taxable income, according to a 1,000 person survey last month from Jackson Hewitt, the tax preparation chain. Fifty-one percent didn’t know they need to request that taxes be withheld from their unemployment compensation. If benefit recipients aren’t withholding money for income taxes now, they’ll be facing a larger liability later–and they may not be ready for that. 37% of taxpayers didn’t know unemployment compensation is taxable income–it’s going to affect a large number of people “because of the magnitude of the crisis now,” Evermore said. The unemployment rate surged in the spring and dropped to a relatively improved 11.1% in June. In the week ending June 13, there were 31.4 million continuing claims for federal and state unemployment insurance programs, according to the Department of Labor.
The size of unemployment benefits can also amplify the tax implications. Through the end of July, the federal government is paying $600 a week on top of the state claim, a result of the $2.2 trillion stimulus CARES Act.