COVID-19 has changed our lives in many ways, and some of the changes have tax implications. Here is basic information about a common situation.
Collecting unemployment
Millions of Americans have lost their jobs due to COVID-19 and are collecting unemployment benefits. Some of these people don’t know that these benefits are taxable and must be reported on their federal income tax returns for the tax year they were received. Taxable benefits include the special unemployment compensation authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act.
In order to avoid a surprise tax bill when filing a 2020 income tax return next year, unemployment recipients can have taxes withheld from their benefits now. Under federal law, recipients can opt to have 10% withheld from their benefits to cover part or all their tax liability. To do this, complete Form W4-V, Voluntary Withholding Request, and give it to the agency paying benefits. (Don’t send it to the IRS.)
We can help
We can answer any questions you have about the taxation of unemployment benefits as well as any other tax issues that you encounter as a result of COVID-19. Feel free to contact us.