Receiving unemployment benefits? Be careful not to wind up with a tax bill next year
All unemployment benefits received after 1978 are taxable
More than 19 million people were receiving unemployment benefits at of the end of June, and some of those people may end up owing the IRS next tax season.
The agency requires people to report income received in the form of unemployment.
Failure to do so could result in taxes owed to the IRS, and failure to pay could result in potential penalties and interest as well.
But many people don't know this. According to a recent survey, 37 percent of Americans thought unemployment compensation was not considered taxable income. It is subject to federal, state and local taxes.
More than half of respondents did not know that they had to request to have taxes withheld from unemployment compensation. A flat federal tax rate of 10 percent can be withheld from beneficiaries’ paychecks.
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If you do not have taxes withheld from your checks, you may have to make quarterly estimated payments to the IRS. These payments are typically required of individuals who expect to owe tax of $1,000 or more when their return is filed.
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Unemployment income and withheld taxes will appear on a 1099-G statement that is typically mailed at the end of the year.
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Under the CARES Act, eligible Americans who are out of work entirely or underemployed because of reasons related to coronavirus can receive an additional $600 a week for up to four months.
The policy is set to expire at the end of July. Lawmakers are discussing whether to extend the expansion or implement another type of incentive, like a back-to-work bonus, that would encourage people to seek out new employment opportunities.
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