Were you laid off during the COVID-19 pandemic? Have you been receiving unemployment benefits? Are you questioning what’s going to happen when it comes time to file your taxes? Wondering whether or not the unemployment benefit income you’ve received is taxable? The short answer is yes, it is.
Millions of Americans have been receiving unemployment benefits after being laid off throughout the current pandemic. Many of those that have qualified for unemployment benefits are receiving them for the first time and as such have been left with questions, including regarding the tax specifics of their benefits.
Earlier this year, IRS released information to remind unemployment recipients that they have the option to withhold taxes from their benefits to avoid them facing large tax payments when they file their returns next year. By law, unemployment benefits are taxable and must be reported on federal tax returns.
Choosing to withhold federal taxes from your benefits is entirely voluntary. Federal law allows recipients to withhold 10% of their taxable income to cover part or all of their taxes. To do so, recipients must complete a W4-V form and submit it to the agency paying their benefits.
Should a recipient choose not to withhold a certain percentage of their income there are alternative options available to them. The first of which would be to simply file their tax returns in 2021 and pay their owed taxes in full. The second alternative option is to pay quarterly payments based on estimated taxes owed.
In January 2021, all unemployment benefit recipients will receive a Form 1099-G. This form will detail the amount that they were paid in benefits throughout the year. It will also include details on how much if at all, they chose to have withheld from their payments. This form is to be used when completing your tax return to ensure that the amount still owed is accurate.
If you have been receiving unemployment benefits and have questions or concerns about your withholdings and tax payments, Milikowsky Tax Law can help. Check out our blog for more information or contact John Milikowsky for a free consultation today.