Millions of Americans receiving unemployment aid could face surprise tax bill

Yahoo News

Millions of out-of-work Americans who are collecting unemployment benefits as a result of the coronavirus pandemic could face an unpleasant surprise when they file their taxes next year.

That’s because unemployment benefits, including the extra money distributed through federal aid programs, count as taxable income.

Unemployment benefits vary by state, but the $2.2 trillion CARES Act signed into law at the end of March sweetened the aid, giving beneficiaries an additional $600 per week through the end of July. The average laid-off worker was receiving about $930 per week in benefits before the boosted aid expired, prompting President Trump in August to issue an executive order partially restoring the supplement at $300 a week.

Congress also passed a $900 billion coronavirus relief package this week that would extend jobless aid by $300 a week through mid-March; however, those benefits are not expected to kick in until the beginning of January, if Trump signs the bill into law.

A recent survey conducted by Jackson Hewitt Tax Service found that 38% of Americans receiving benefits were unaware that the money was taxable – and nearly two-thirds of those individuals had not set aside or withheld money from the payment for their 2020 income taxes.

“This year there is real potential for refund shock,” said Mark Steber, chief tax information officer at Jackson Hewitt. “A large number of people receiving unemployment benefits don’t know that the benefits are taxable, that taxes are not automatically withheld, or that unemployment pay can impact other tax credits.”

The benefits are taxable at the federal level and by most states (California, New Jersey, Oregon, Pennsylvania and Virginia are the only ones to completely exempt it), meaning recipients could wind up with a tax bill next year, even though they lost their job. You do not have to pay Social Security and Medicare taxes on your unemployment benefits.

The total amount of income you receive and your filing status will determine whether or not you need to file a tax return.

There are roughly 20 million Americans receiving jobless aid, according to new data published Wednesday by the Labor Department.

To avoid an unexpected tax hit next year, recipients have two options:

Have taxes withheld:

When you first receive benefits, your state government will provide you with an IRS Form 1099-G. You can choose to have income taxes withheld from your compensation at this time (the total federal tax withheld will appear in Box 4, and the state tax withheld will appear in Box 110).

If you are already receiving the payments and want the government to automatically take your tax obligation from the money before you receive it, as it does with a typical paycheck, then you need to file Form W-4V. This informs the payor (the state government) to withhold 10 percent from your check for federal income tax.

Make quarterly payments to the IRS:

If you’d rather not have your taxes withheld by the government, you can opt to make the estimated payment every quarter.

To do so, beneficiaries will have to calculate their obligation and meet payment deadlines every three months. Undershooting how much you owe or missing a deadline could result in a penalty charge.

https://finance.yahoo.com/news/millions-americans-receiving-unemployment-aid-170211095.html

One thought on “Millions of Americans receiving unemployment aid could face surprise tax bill

  1. What a bunch of ‘jews’
    Nevermind that personal income is actually forbidden.
    Taxing relief money? Sickening to the last, but then again so was handing out the cash in the first place.

    If the public can vote money out of the treasury for themselves america will suffer the fate of ancient greece and collapse.

    This stimulus money is a lollipop to get you addicted to UBI, a sedative to keep us from killing them.

    Well, if we don’t kill them they will kill us, They’re already doing that. Or do you think this covid thing is natural?

    -flek

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