Categories
Finance

IRS reminds taxpayers that unemployment income is taxable

Many Consumers may want to pay some of those taxes now to avoid a bigger bill in 2021.

Many Consumers may want to pay some of those taxes now to avoid a bigger bill in 2021. Over $600 unemployment checks might have been an accepted relief to those people whose jobs are damaged by the COVID-19 pandemic. However, the Internal Revenue Service (IRS) reminds recipients that unemployment compensation is taxable. The agency advises that these consumers want to have tax withheld now and prevent a tax-time surprise on April 15, 2021. 

According to United States law, the unemployment compensation is taxable, even though it comes from the unemployment compensation approved under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

What to think about other than just unemployment

The IRS reminds taxpayers a look at more than just their unemployment compensation in the state and federal authorities. 

The choice is up to the taxpayer.

Withholding is entirely voluntary, and some consumers may be banking on a return to work at some point and may utilize the unemployment benefits in the meantime.

But if a taxpayer can afford to utilize $60 out of a $600 unemployment check to cover their tax liability, the IRS states that’s smart. It may hurt a bit now, but it might save having to write a larger check in the long run or help customers avoid a smaller return requirement.

Unemployment compensation beneficiaries who return to work prior to the end of 2020 must use the IRS reminds taxpayers Withholding Estimator to be sure they are having sufficient tax dollars removed from their pay and won’t be facing an invoice that the IRS at 2021.

To go in this path, the steps are pretty simple:

  • Fill the Form W-4V, Voluntary Withholding Request and
  • Provide it into the agency paying the benefits, rather than sending it to the IRS.
  • If the payor has its withholding petition form, use it instead.
  • For recipients who don’t decide to withhold — or when withholding isn’t sufficient — they can elect to make quarterly estimated tax payments rather than The payment for the first two quarters of 2020 was expected on July 15; however, likely, the IRS won’t penalize you, given the problem with the pandemic.

The two last payments – Third and Fourth quarter payments are due on September 2020, and January 15, 2021. To find out more, including some useful worksheets, visit Form 1040-ES and Publication 505, available on IRS.gov.

Leave a Reply

Your email address will not be published. Required fields are marked *