Unemployment Benefits Are Taxable

The CARES Act provides greater benefits for those in need of unemployment compensation that have lost their jobs, been put on leave, or experienced reduced hours due to the Coronavirus. Weekly unemployment checks are also increased by $600 through July. The federal government is also reimbursing states for the first week of unemployment benefits until the end of the year (states normally impose a one-week waiting period before paying benefits). An additional 13 weeks of benefits is included, too.

Fortunately, it also provides up to 39 weeks of unemployment benefits for self-employed people, independent contractors and others out of work because of the coronavirus pandemic who don’t otherwise qualify for benefits. You can check up on what’s happening in your state here: https://www.careeronestop.org/LocalHelp/UnemploymentBenefits/find-unemployment-benefits.aspx.

That’s the good news.

The bad news is unemployment benefits are taxed. The reality is that unemployment benefits are a form of income, and that income is taxable at both the federal and state level. According to the Internal Revenue Service, unemployment compensation, for the most part, includes any amounts received under federal or state unemployment compensation laws, including state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. Some states exempt unemployment benefits from taxes, so make sure you review your state’s unemployment tax policies.

You have the option to have as much as 10% of your weekly benefits withheld for federal taxes. Taxpayers will receive a Form 1099-G from the IRS, which shows the amount received and the amount of any federal income tax removed from your benefits. Taxes may be withheld from unemployment benefits at the request of the benefits claimant by using Form W-4V, while others who choose not to have their taxes withheld may need to make estimated tax payments during the year, according to the IRS.

Contact Us: Your Fuoco Group CPA can help you with questions regarding what state should you file in if you work in one but live in another, what to do if you have income from more than one state, and what to do if you recently moved. We can also help small business owners, independent contractors, and sole proprietors and other self-employed individuals with their questions.