Which States Don’t Tax Unemployment Benefits
Whether you have to pay state income taxes on your unemployment benefits depends on where you live. Some states don’t have income taxes or treat unemployment benefits differently from other types of income.
- Seven states don’t have any income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
- Two states only have income taxes for investment income: New Hampshire and Tennessee.
- Six states exempt unemployment benefits from income taxes: Alabama, California, Montana, New Jersey, Pennsylvania and Virginia.
- Two states may only tax a portion of your unemployment benefits: Indiana and Wisconsin.
In other states, your unemployment benefits may be treated as regular income and taxed at the same income tax rates. Some cities and counties may also have a local income tax that applies to unemployment benefits.
What If I Didnt Collect Unemployment Benefits In 2020 But I Still Received A Form 1099g
Considering EDD has already confirmed its paid out more than $10 billion in fraudulent claims, there will certainly be tax forms going out to people whose identities have been used to file fake claims.
If you get a form documenting funds you never received, EDD says to call 1-866-401-2849, but I would encourage people to use the online tool versus trying to call, said Amy Spivey, director of the UC Hastings Low-Income Taxpayer Clinic.
You can report fraud on your 1099G form on EDD’s site. Just follow the topic boxes.
If you feel there is an error on your 1099G form and cant get an amended one from EDD before filing time, make sure you dont report that income when you file your taxes.
According to Spivey, if theres a mismatch between the earnings on your return and a 1099G the IRS has for you in its system, youll likely get a notice flagging underreported income. “And then at that point, you could respond directly to the IRS as well,” advised Spivey. The downside of that, she said, is that if you’re eligible for a refund, it could delay it.
Filing Your Taxes If You Claimed Unemployment Benefits: What To Know Where To Find Help
The 2021 IRS deadline for filing your taxes has been pushed to May 17 to give people more time to get organized in the wake of the COVID-19 pandemic.
Even with this extra time, your situation is likely to be even more complicated if youve been unemployed during the course of the pandemic since you have to pay taxes on federal unemployment if you earned above a certain amount in benefits.
With the new IRS tax filing deadline now less than a month away, here’s what you need to know about filing your taxes if you’ve claimed unemployment benefits this year and where you can find free or low-cost tax help, even after many such support services closed up shop on the original IRS deadline of April 15.
Also Check: How Do I Change My Address For Unemployment Online
Guide To Unemployment And Taxes
OVERVIEW
The IRS considers unemployment compensation to be taxable incomewhich you must report on your federal tax return. State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year.
If you received unemployment benefits this year, you can expect to receive a Form 1099-G Certain Government Payments that lists the total amount of compensation you received. The IRS considers unemployment compensation to be taxable incomewhich you must report on your federal tax return. Some states also count unemployment benefits as taxable income.
Last Resort: Do Nothing
Technically, you could collect your full unemployment check without withholding and ignore your tax liability until you file your returns next year. There’s no good reason to do this, however. You will eventually have to pay the taxes, along with penalties and interest from the IRS and, possibly, your state.
The IRS penalty is based on prevailing interest rates and was 3.398% of your underpayment in the 2019 tax year, or about $34 for every $1,000 of estimated taxes you should have paid. If you live in a state that taxes unemployment income, you could face additional penalties at the state level.
Don’t Miss: How Do I Track My Unemployment Card
Q4 Do I Need To File An Amended Return If I Live In A Community Property State And Did Not Enter The Correct Exclusion Amount On Schedule 1 Line 8
A4. If you entered an exclusion amount less than what it should have been based on FAQ , you do not need to file an amended return. The IRS will recalculate your exclusion amount following this guidance and adjust your return for the difference. These corrections are currently planned for later this summer. You will receive a notice regarding the correction within 30 days of your account being adjusted.
How Do I File Taxes If I Only Received Unemployment In 2020
Unemployment benefits are taxable income. If you received unemployment benefits at any point you should have receive a Form 1099-G reporting the 2020 total to the IRS. If you didn’t receive the form, most state unemployment sites will have the form available to download once you log in. If you had any taxes withheld from the benefits those should appear on the form.
Josh Rivera
Follow Josh on Twitter
Recommended Reading: How Do I Sign Up For Unemployment In Indiana
Protecting Your Credit When You’re Unemployed
While unemployment benefits can help you cover basic necessities, they won’t necessarily be enough to cover all your bills. While being unemployed doesn’t impact your credit directly, it can indirectly hurt your credit if you fall behind on bills.
Many creditors recognize that you could be unemployed because of circumstances outside your control, and may work with you to temporarily waive or lower your payments. These hardship options can make it easier to manage your bills, and working with the company rather than skipping a payment without an explanation can help protect your credit.
Which Taxes Apply To Unemployment Benefits
Generally, you’ll have money withheld from your paycheck for several types of taxes: income, Social Security and Medicare.
Combined, the Social Security and Medicare taxes are called Federal Insurance Contributions Act taxes, and they can be up to 7.65% of your pay. But FICA taxes don’t apply to unemployment benefits.
You have to pay federal income taxes on your unemployment benefits, as well as any applicable local and state income taxes.
Similar to how you receive a W-2 or 1099-MISC tax form with your wages and income and use those to prepare your tax return, your state will send you the IRS copies of Form 1099-G with a record of how much you received in unemployment. You’ll include this amount in your income for the year when you file your taxes.
Through July 31, 2020, your taxable unemployment benefits may include an additional $600 a week as part of Coronavirus Aid, Relief and Economic Security Act stimulus. The extra benefit also counts as taxable income. The separate one-time stimulus check that was also a component of the CARES Act is not, however, subject to income taxes.
Recommended Reading: Make Money Unemployed
Unemployment Taxes At The Federal Level
At the federal level, unemployment benefits are counted as part of your income, along with your wages, salaries, bonuses, etc. and taxed according to your federal income tax bracket.
With most income, like wages, taxes are pay-as-you-go. With wages, you are expected to pay taxes on your income as you earn it. As an employee, part of your paycheck is usually automatically deducted to pay your federal income and Social Security taxes. Unlike wages, federal income taxes are not automatically withheld on unemployment benefits.
If You Owe Tax You Cant Pay
Many Americans find themselves in a position where they still need every cent of those unemployment checks for living expenses, in which case theres no money left to send to the IRS for quarterly estimated tax payments. You might still have options if this is the case.
The IRS suggests paying what you can and reaching out to take advantage of one of its payment options to deal with the balance. You can ask for an installment agreement and pay off your tax debt on balances of up to $50,000 over 72 months, according to Capelli.
Making the request is a simple matter of filing Form 9465 with the IRS. This will at least cut the 0.5% per month late-payment penalty to 0.25%, although the effective interest rate will continue at 3% .
You might also look into an offer in compromise to settle your tax debt for less than the full amount you owe, or ask the IRS for a temporary delay in collecting if your financial situation is particularly difficult. But youll almost certainly need the help of a tax professional to exercise either of these options.
Capelli strongly recommended against taking out a loan to pay your tax bill except as a last resort.
Do not, under any circumstances, borrow money unless its interest-free, Capelli said. Dont use a credit card to pay your taxes. The IRS interest rate is lower than most credit cards, and the IRS payment plan doesnt appear on your credit report.
Recommended Reading: Change Address For Unemployment Benefits
Don’t Be Surprised By An Unexpected State Tax Bill On Your Unemployment Benefits Know Where Unemployment Compensation Is Taxable And Where It Isn’t
Thanks to the COVID-19 pandemic, millions of Americans have gotten an unwanted crash course on the U.S. unemployment compensation system. There are a lot of common questions from people seeking unemployment benefits for the first time. How do I apply for benefits? How much will I get? How long will the benefits last? People need answers to these questions right away. But once you start receiving payments, another question will likely spring to mind: Will I have to pay taxes on my unemployment benefits?
When it comes to federal income taxes, the general answer is yes. Uncle Sam taxes unemployment benefits as if they were wages . However, when it comes to state income taxes, it depends on where you live. Most states fully tax unemployment benefits. However, some states don’t tax them at all , and a handful of states will only tax part of your benefits. Plus, like the federal government, some states are making special exceptions to their general rule for 2020 and/or 2021 to help people who lost their job because of the pandemic.
1 of 51
Effect On Other Tax Benefits
Taxable unemployment benefits include the extra $600 per week that was provided by the federal government in response to the coronavirus pandemic, accountant Chip Capelli, of Provincetown, Massachusetts, told The Balance.
Not only is unemployment compensation taxable, but receiving it can also affect some tax credits you might be eligible for and are counting on to defray those 2020 taxes that will be due.
Something else to consider is if you usually get the Earned Income Credit each year, Capelli said. While unemployment benefits arent considered earned income, they do influence your adjusted gross income , which is used to calculate the EIC.
The American Rescue Plan Act also expanded eligibility for the EIC to include more households, including childless households, as well as increasing the maximum credit from $543 to $1,502.
Recommended Reading: Can You Draw Unemployment If You Quit Your Job
Use Withholding To Minimize Surprises
If you didn’t request tax withholding when you filed for unemployment, call up your state office and ask for withholding now. It may feel counterproductive in a time when cash is really tight, but automating those tax payments is the best long-term play. You should also take the additional step of estimating your taxes for the year, just to ensure the 10% federal withholding has you covered.
Start Saving As Soon As Possible
If the bill isnt too big, you may be able to simply save up enough money between now and the April 15 due date to pay the bill by then. The most efficient way of doing this is to set up a savings plan for yourself where you automatically put aside a small amount each week from your checking to your savings account.
Don’t Miss: Unemployment Address Change
Top Credit Card Wipes Out Interest Into 2023
If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR into 2023! Plus, youll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read The Ascent’s full review for free and apply in just 2 minutes.
Not Planning To File Parents Should To Get The Expanded Child Tax Credit
The American Rescue Plan included monthly payments for parents with children age 17 and under.
The payments are based on the 2020 tax return. So even if you dont owe taxes or expect a refund, you still might file to be eligible for the expanded child tax credit benefit.
Starting in July, the IRS will begin sending out monthly payments of $250 or $300 through December to low- and moderate-income families who qualify.
The credit will begin to phase out for those earning more than $75,000 a year or $150,000 for those married and filing jointly.
The American Rescue Plan expanded the credit to up to $3,600 per child under five years old and $3,000 for children between the ages of 6 and 17 annually. Families will get the remainder of the credit when they file their 2021 tax return.
To be eligible, children must: have a Social Security number, reside with the individual claiming them for at least half of the year, and be under 18 years old as of December 31, 2021. Biological children, adopted children, stepchildren, half-siblings, foster children, grandchildren, nieces or nephews, and certain other relatives are eligible.
Recommended Reading: Collecting Unemployment While Starting A Business
Will The Irs Base The Next Stimulus Package On Our 2020 Or 2019 Taxes
… My new husband and I filed “married filing joint” for the first time this year. We qualify for earned income credit and have child tax credits as well.
The first two rounds of Economic Impact Payments were structured as upfront payments of a tax credit for 2020. Those payments were determined by income on filers’ 2018 or 2019 returns depending on which ones were available at the time of issuing.
So if your situation changed over the year you maybe be able to claim full or additional payments based on their 2020 tax return through the Recovery Rebate Credit, line 30 of the 1040 form.
The third round of stimulus payments will likely be based on either 2019 or 2020 tax returns again, depending on which ones are available at the time of issuing. That could impact the timing of your filing if you want the 2020 to be the basis of what the decision is made.
Josh Rivera
Follow Josh on Twitter
Reporting Unemployment Benefits On Your Tax Return
You report your unemployment compensation on Schedule 1 of your federal tax return in the Additional Income section. The amount will be carried to the main Form 1040. Remember to keep all of your forms, including any 1099-G form you receive, with your tax records.
If you use TurboTax to file your taxes, well ask about your unemployment income and put the information in all the right tax forms for you.
TurboTax is here to help with our Unemployment Benefits Center. Learn more about unemployment benefits, insurance, eligibility and get your tax and financial questions answered.
Recommended Reading: Teleclaim Sc
What To Know About The Unemployment Tax Break
The first thing to know is that refunds would only go to taxpayers who received jobless benefits last year and paid taxes on that money before the provision in the American Rescue Plan Act of 2021. The tax break is for those who earned less than $150,000 in adjusted gross income and for unemployment insurance received during 2020. At this stage, unemployment compensation received this calendar year will be fully taxable on 2021 tax returns.
The $10,200 tax break is the amount of income exclusion for single filers, not the amount of the refund . The amount of the refund will vary per person depending on overall income, tax bracket and how much earnings came from unemployment benefits. So far, the refunds have averaged more than $1,600.
However, not everyone will receive a refund. The IRS can seize the refund to cover a past-due debt, such as unpaid federal or state taxes and child support. One way to know if a refund has been issued is to wait for the letter that the IRS is sending taxpayers whose returns are corrected. Those letters, issued within 30 days of the adjustment, will tell you if it resulted in a refund or if it was used to offset debt.
If the IRS continues issuing refunds, they will go out as a direct deposit if you provided bank account information on your 2020 tax return. A direct deposit amount will likely show up as IRS TREAS 310 TAX REF. Otherwise, the refund will be mailed as a paper check to whatever address the IRS has on hand.
How Does Unemployment Affect My Taxes
Unemployment benefits are generally taxable. Most states do not withhold taxes from unemployment benefits voluntarily, but you can request they withhold taxes. If you are receiving unemployment benefits, check with your state about voluntary withholding to help cover your income taxes when you file your tax return. Make sure you include the full amount of benefits received, and any withholdings, on your tax return.
Recommended Reading: Unemployment Indiana Application
