Millions of out-of-work Americans who collected unemployment benefits as a result of the COVID-19[female[feminine pandemic could face a nasty surprise when filing taxes this year.
This is because unemployment benefits, including extra money distributed through federal assistance programs, count as taxable income.
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Unemployment benefits vary by state, but the $1.9 trillion U.S. bailout that Democrats signed into law last March softened the aid, giving recipients an additional $300 a week through the start of the month. of September. The average laid-off worker was receiving about $630 a week in benefits before the enhanced aid expired on September 6, 2021.
Congress also passed a $900 billion coronavirus relief package in late December 2020 that extended unemployment assistance by $300 a week through mid-March.
In addition to providing workers with an additional $300 a week on top of their regular state benefits, the programs offered assistance to workers who were typically ineligible and extended state unemployment benefits once they were exhausted.
But many Americans who received the benefits may not have known the money was taxable — or that taxes on the aid weren’t automatically withheld — leaving them exposed to repayment shock when they file their taxes.
Even more confusing for recipients of unemployment assistance, last year Congress eliminated federal income tax up to $10,200 in 2020 Unemployment Insurance benefits for people earning less than $150,000 per year. The break will not apply to this year’s tax filing season, which started on January 24 and ends on April 18.
Benefits are taxable federally and in most states (California, New Jersey, Oregon, Pennsylvania, and Virginia are the only ones to completely exempt it), meaning recipients could end up with a tax bill this year, even though they lost their jobs. You do not have to pay social security and health insurance contributions on your unemployment benefits.
The total amount of income you receive and your filing status will determine whether you need to file a tax return.
According to data from the left-leaning Century Foundation, about 25 million Americans received unemployment assistance last year.
To avoid an unexpected tax hit next year, beneficiaries had two options:
Have taxes withheld:
When you first receive benefits, your state government will provide you with a IRS Form 1099-G. You may elect to have income tax withheld from your compensation at this time (the total federal tax withheld will appear in box 4, and the state tax withheld will appear in box 110).
If you are already receiving the payments and want the government to automatically deduct your tax liability from the money before you receive it, as is the case with a typical paycheck, you must complete the form W-4V. This notifies the payer (the state government) to withhold 10% of your check for federal income tax.
Make quarterly payments to the IRS:
If you prefer not to have your taxes withheld by the government, you can choose to make the estimated payment quarterly.
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To do this, the beneficiaries will have to calculate their obligation and respect the payment deadlines every three months. If you underestimate the amount you owe or miss a deadline, you could be assessed a penalty.