There is probably not a single American on the planet that likes taxes. Each year, the tax code changes so there is nothing easy about the filing process. Over the past year, many Americans filed for unemployment—some of them for the first time. As we near tax season, we thought it would be a good idea to tackle the thorny issue of taxes and unemployment. If you filed in 2020, here’s what you need on hand to pay your taxes.
Federal, State, and Local Taxes and Your Unemployment
Before we get started, our disclaimer: We are not accountants. However, we tuned to intuit TurboTax to get some of the latest information on what to do about the unemployment you received during the past year. They define unemployment as, “a form of monetary assistance provided by the federal and state governments to people who are out of work.” You probably qualified for this benefit if you were laid off or fired through no fault of your own. If you received a severance at work, you’ll notice that taxes are already taken out from that income, so that will be reflected on your W-2. Also, this year, there is no penalty related to losing your health insurance.
The amount of income you received via unemployment varies by the amount of time you were on the job, the earning amount when you were on the job, and the top benefit allowed by your state.
The first thing to note is that any unemployment you received is taxable as income. Although there is a low-income threshold where some people don’t have to file, if you do, it must be reported at both the state and federal levels. You will receive a Form 1099-G from the government which lists the total amount of unemployment compensation that you received. This form is important for filing your taxes.
- Look at Box 1 to see the total amount of your unemployment compensation.
- Look at Box 4 to see the total amount of withheld taxes from your unemployment.
- Look at Box 11 to see how much state taxes were withheld.
You will report your unemployment on Schedule 1 of the federal tax return under “additional income.” Keep all of these forms, along with the 1099-G on file in case you are audited.
Keep in mind most states don’t withhold taxes automatically on unemployment benefits so this is something you have to ask the employer or staffing agency about. If you qualify for tax credits, such as the child tax credits, you may not have to pay additional taxes. The other consideration is that if you are still unemployed at tax time and you owe, you can set up a payment plan with the IRS. According to Jackson Hewitt, the IRS also has a few programs that can forgive the tax penalties you accrue.
If you’re looking for work, talk to the experts at Gecko Hospitality. We have jobs that can help you save up your unemployment for a rainy day. Talk with our team about your options.
