Since March 2020, nearly 36.5 million Americans have filed for unemployment. While some have returned to the workforce, millions remain dependent on unemployment compensation. Additionally, those receiving unemployment benefits due to the coronavirus pandemic are receiving a boosted payout. While the income is surely necessary, we need to be mindful that this income is taxable.
State Taxes
If you qualify for unemployment benefits through your state you may be subject to taxation of that income. State taxation of unemployment benefits varies. If you live in California, Montana, New Jersey, Oregon, Pennsylvania and Virginia, your unemployment benefits are tax-exempt. Additionally, seven states – Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming – do not levy any state income taxes. Kiplinger has an easy to view and comprehend state tax map. Scroll to find your state and see if your state taxes unemployment income.
Federal Taxes
Under the CARES Act, any eligible unemployed person will receive both regular unemployment benefits from their state and an additional $600 a week from the federal government. This boost in pay is set for the duration of April 5, 2020 to July 31, 2020. This income will be subject to taxation. Early, 2021 you will receive Form 1099 G (Certain Government Payments). You use this form to fill out your tax return to make sure you paid the right amount of taxes.
How to Pay the Taxes
You are not required to have taxes withheld from your unemployment benefits check. Financial experts say it is a good idea to take the taxes out up front. If you elect to have your taxes automatically taken from your unemployment benefit income you will need to fill out form W-4V. Depending on your state, this may be something you can do online through the benefits portal. The other option is to make quarterly payments directly to the IRS for the amount you estimate you’ll owe.
