Unemployment Benefits: What You Need to Know for the 2020 Tax Season
Contributed by: Jason Gaskell, CPA – Manager
The global pandemic has had a nationwide impact on the U.S. economy. Shifting market climates and higher than average unemployment rates have resulted in some individuals falling under hardship during COVID-19. August reports show that while weekly jobless claims recently hit their lowest level of the pandemic era, the number of people who have collected benefits for two straight weeks is still at approximately 16.1 million. These numbers indicate that extended unemployment benefits may be the norm for millions as the country attempts to right the economic ship that has created so much disruption across so many industries and verticals.
Next Year’s Tax Refund Could Be Impacted By Unemployment Benefits in 2020
You yourself may have received unemployment benefits over the last several months, making it essential to know what you’ll be up against when filing next year. And, while most of us feel that the July deadline this year has made it impossible even to consider next year’s tax season (accountants included!), it’s never too soon to start planning, particularly if you’ve received unemployment benefits in 2020. Understanding your tax obligations and the potential implications of these benefits could certainly be felt when you file your 2020 tax returns.
Understanding the Implications Of Unemployment Benefits
The biggest thing to know about unemployment benefits is that these payments are taxable income reportable to the Internal Revenue Service (IRS) under federal law. This means that recipients must report all unemployment benefits received to the IRS on your federal tax return. A Form 1099-G will be issued to each recipient relating to the benefits received in early 2021 relating to the total benefits received for 2020.
Additionally, if you are receiving benefits, you may opt to have federal income taxes withheld from your unemployment benefit payments. It’s important to note that tax withholding is completely voluntary; withholding taxes is not required. You would have decided to withhold when signing up for your unemployment benefits. If no Federal tax was (or is) being withheld from your benefits, it may be time to consider the implications not withholding will have on your 2020 returns.
Contact Leone, McDonnell & Roberts Today
Yes, the July tax deadline just passed. However, it’s never too early to start tax planning for next year. Contact Leone, McDonnell & Roberts to discuss the potential tax burden implications you may be facing in 2021.