Be Prepared To Pay Taxes on Jobless Benefits Again
History is unlikely to repeat itself when it comes to the recent unemployment insurance tax cut, so people receiving unemployment benefits this year should be prepared to pay taxes on their unemployment benefits now or later.
Although unemployment insurance is considered taxable income, Congress made an exception last year, as a record number of people filed for unemployment benefits during the pandemic.
However, in the absence of current legislation extending that slack for another year, tax planners say people should start paying now or start saving to pay when tax season rolls around.
(Senator Dick Durbin, who along with Representative Cindy Axne proposed the first bill to exclude some unemployment income from taxes, did not respond to a request for comment on whether similar legislation was planned for 2021.)
Between March 15 and August 15, 2020, more than 52 million claims for unemployment benefits were filed, representing nearly 36% of the workforce whose employers participate in the unemployment insurance system.
To Pay Taxes on Jobless Benefits
To help individuals, Congress passed the American Rescue Plan in March, which allowed individuals and couples to exclude up to $ 10,200 of unemployment benefits from taxable income if taxpayers' modified adjusted gross income was less than $ 150,000. .
Although the number of people applying for unemployment benefits has dropped significantly this year, with the reopening of the economy, millions are still on the list of unemployed. In the week ending June 19, the Bureau of Labor Statistics reported that 14.2 million people applied for unemployment insurance, up from 33.2 million in the same week last year.
"Unlike 'regular' tax withholdings, there is no automatic tax withholding for unemployment benefits," said Mark Steber, director of tax information for the Jackson Hewitt Tax Service, by email. "This means that taxpayers must accept or choose to withhold taxes from their unemployment benefits."
Federal law allows beneficiaries to voluntarily elect a flat 10% withholding of unemployment benefits to cover part or all of their tax obligations. Taxpayers must complete a voluntary withholding form and submit it to the agency that pays their benefits.
But Steber cautioned that 10% is often not enough to meet tax obligations at the end of the year. One way around this is to determine how much you need to set aside for taxes and then start saving for tax season or send additional money to the IRS using estimated quarterly tax payments.
We hope you enjoy watching this video about this notice here
Source: ClearValue Tax
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