Do I owe taxes on unemployment benefits?

Your Guide to State, Local, Federal, Estate + International Taxation

After President Trump declared a state of emergency due to COVID-19 in mid-March, there were 45 million new unemployment claims filed in the three months that followed.  For many of the people receiving unemployment compensation, this is all new territory.  If you find yourself in this situation, it is important to understand that these payments are taxed at the federal, state and potentially the local level. How much you will owe is dependent upon your overall income for the year and several other factors.

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Similar to receiving a W-2 or 1099-MISC tax form with your wages and income, your state will send you a form 1099-G with a detailed record of total benefits received for unemployment. This will need to be reported on your 2020 tax return.  Any form of special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including the additional $600 per week in unemployment benefits, is considered taxable income.

While withholding is voluntary, Federal law allows any recipients to have a flat 10% withheld from their benefits to cover part or all their tax liability. This can be accomplished by filling out Form W-4V on the IRS website and sending it to the agency paying the benefits. If the payor provides their own withholding request form, use it instead.

If you choose not to withhold taxes, or if withholding is not enough to cover your total tax liability, quarterly estimated tax payments can be made instead.

If you need assistance, contact your Henry+Horne tax professional for more details.  For more information and resources on COVID-19, see our coronavirus page.

Christopher Cluff