Your Local Cpa Can Help
Loss of a job is a tough blow, but there are many steps you can take to maintain a sound financial footing as you search for new employment. Your local CPA can offer advice on revising your budget, cutting expenses and dealing with tax and other financial issues. Turn to him or her with all your financial concerns.
Copyright 2014 American Institute of Certified Public Accountants.
The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the professions nationwide 360 Degrees of Financial Literacy program.
Other Issues Concerning California State Payroll Taxes
California has some other tricky rules for state payroll taxes:
- If you have family members working for you, they are subject to state personal income tax withholding, but they are not subject to unemployment insurance, employment training taxes or state disability insurance payments.
- Family members include children under the age of 18 employed by a parent, or partnership consisting only of parents and include adopted children but not stepchildren or foster children.
- Family members also include persons employed by a spouse or a registered domestic partner or a parent employed by a son or daughter, again including adoptive parents but not stepparents or foster parents.
- Most nonprofit organizations are subject to unemployment insurance, employment training tax, state disability insurance and personal income tax withholding.
- Special exclusions from unemployment insurance and state disability insurance payments include elected officials, members of legislative bodies or the judiciary, and members of the state National Guard or Air National Guard except those who provide services as regular state employees.
Why Withholding Makes Senseand How To Do It
You’re not required to have taxes withheld from your unemployment benefits check. But experts say it’s a good idea to go ahead and do so. Taking a hit upfront is better than finding out you owe the IRS at the end of the year. “I know people really need their money, but so there are no surprises at tax time, I would say request to withhold some of the money,” says Lisa Greene-Lewis, a certified public accountant and TurboTax tax expert.
This is especially important if you’ve earned income already for the year or expect to be employed again, because then you’re likely to be in a higher tax bracket and may not qualify for as many credits to offset your earnings.
“Usually unemployment benefits are only a couple hundred bucks a week,” says Andrew Stettner, a senior fellow at the Century Foundation and a leading unemployment expert. It might feel easy to rationalize taking the money now and increasing your deductions when you get back to work. But with these generous unemployment benefits, that mindset could be a substantial liability, he says.
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Taxpayers With Income From Unemployment Or In
Sacramento â The Franchise Tax Board today highlighted recent developments that expand Californians eligibility for the California Earned Income Tax Credit . The changes apply to people who received unemployment insurance benefits in 2020, as well as those who received income from In-Home Supportive Services or a Medicaid waiver program for providing care to an individual they lived with anytime since 2016.
I want to be sure Californians know they may be newly eligible for additional tax credits, said State Controller and FTB Chair Betty T. Yee. These changes may also allow more taxpayers to be eligible for a $600 or $1,200 Golden State Stimulus payment, providing additional relief for those facing pandemic-related hardship.
Calculate Unemployment Insurance And Employment Training Tax
UI tax and ETT are calculated based on the taxable wages up to the UI taxable wage limit of each employees wages per year and are paid by the employer.
Rates used are for demonstration purposes only, employerâs individual rates may vary. Employers may access their current rates through e-Services for Business, select “View your Payroll Tax Rates” under “More Online Services.” Refer to How to Determine Taxable Wages for additional information on determining the taxable wages to be used in the calculation.
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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.
Tip #: Learn About Self
Theres good and bad tax news for people who begin consulting or set up their own business when they find themselves out of work. You should be able to deduct many of the ordinary and necessary expenses related to starting up and running a new business, including costs associated with a home office or the business use of your car.
But, since you wont have an employer withholding taxes for you, you will have to make quarterly estimated tax payments on your self-employment income. That will include paying the full cost of self-employment taxes as well as income taxes.
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Will Stimulus Checks Be Taxed
For those who received stimulus checks, the income is not taxable at the federal level. You might recall that the first check was for up to $1,200 for eligible adults and $500 per dependent, and the second check was up to $600. Although some states are taxing the income, these payments are not subject to California income tax.
How Can I Get Free Tax Return Prep Assistance
Several free tax preparation programs exist that can assist those who are eligible. This year, some will offer COVID-friendly filing options, including contactless drop-off, virtual, and online filing. These are just a few:
Volunteer Income Tax Assistance and Tax Counseling for the Elderly
For more than 50 years, the IRS’s VITA program has offered free tax return preparation assistance to those who make $57,000 or less, persons with disabilities, and limited English-speaking taxpayers. The TCE program focuses on helping those who are 60 years of age and older and specializes in pensions and retirement-related issues that affect the elderly.
Note that while the IRS manages the program, IRS-certified volunteers are the ones who help people with tax returns. To find the nearest location and check whether an appointment is required, visit their website.
Did you know that you donât need to pay someone to help you file your taxes if you earn less than $57,000 a year?The IRS provides free, safe and trustworthy tax prep right in our community! Find a location near you at .
â L.A. County Center for Financial Empowerment
Free Tax Prep L.A.
On January 27, Mayor Eric Garcetti launched the Free Tax Prep L.A. 2021 campaign to make working-class families aware that they may qualify to get their taxes prepared for free. Those who made less than $57,000 in 2020 are eligible.
OC Free Tax Prep
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Stimulus Check Live Updates: Latest On Reductions In Child Tax Credit Stimulus Check Payments And Unemployment Benefits
On this live blog, we have all the latest updates on US stimulus checks for . There’s also the latest updates on US benefits, Child Tax Credit, Medicare and more.
- Social Security Statement.How to get the statement online
The US government has decided to put an end to its stimulus check initiatives, so state governments have taken over the responsibility to try and provide financial support to American families amid the COVID-19 pandemic. Now, decisions on post-coronavirus stimulus check and benefits programs will be made at state level. This means good news for some Americans, who’ll still collect payments, and bad news for others.
A major effort has been made from the majority of states across the USA in a bid to help those from a lower or medium-income background in particular, with what is a welcome relief for many families who have been stricken financially by the continuous nature of the pandemic.
Overview: What Is The State Unemployment Tax Act
When employees lose their jobs through no fault of their own, the state or territory where they work provides temporary compensation while they seek new work.
Through the State Unemployment Tax Act , states levy a payroll tax on employers to fund the majority of their unemployment benefit programs. Alaska, New Jersey, and Pennsylvania collect state unemployment tax from both employers and employees.
Employers also pay Federal Unemployment Tax Act taxes. The federal government uses the revenue to cover the administrative cost of state unemployment benefit programs.
Any amount your business pays in SUTA tax counts as a small business tax deduction.
When you pay SUTA taxes on time and file IRS Form 940, your FUTA tax rate goes down as low as 0.4%.
Information For People Who Already Filed Their 2020 Tax Return
This law change occurred after some people filed their 2020 taxes. For taxpayers who already have filed and figured their 2020 tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation. Any resulting overpayment of tax will be either refunded or applied to other taxes owed.
The agency will do these recalculations in two phases.
- First, taxpayers who are eligible to exclude up to $10,200.
- Second, those married filing jointly who are eligible to exclude up to $20,400, and others with more complex returns.
Taxpayers only need to file an amended return if the recalculations make them newly eligible for additional federal tax credits or deductions not already included on their original tax return.
For example, the IRS can adjust returns for taxpayers who claimed the earned income tax credit and, because the exclusion changed their income level, may now be eligible for an increase in the EITC amount.
However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but are now eligible to claim them following the change in the tax law. Taxpayers can use the EITC Assistant to see if they qualify for this credit based upon their new taxable income amount. If they now qualify, they should consider filing an amended return to claim this money.
These taxpayers may want to review their state tax returns as well.
California Payroll Tax Pitfalls And Penalties
The greatest pitfall in dealing with federal and state income taxes can be attempting to handle them yourself as a business owner. The larger your business, the more complicated payroll taxes become.
If you only have a couple of employees or are experienced with the California payroll tax provisions, you may be able to take care of it yourself or pay an accountant, but at a certain point, you may require the services of a tax attorney to advise you about the details of tax law or to help you resolve penalties.
Sometimes employers are not aware of those defined as statutory employees. These are individuals who may not be employees as defined by common law but who should be classified as employees for employment tax purposes.
- Any officer of a corporation
- Agent-drivers or commission-drivers
- Unlicensed construction workers engaged to perform services for which a license is required
- Workers who have a work-for-hire provision in their contract
The IRS has something known as the Trust Fund Recovery Penalty or TFRP . This extends liability for payroll taxes to corporate officers and owners of the company. However, this is limited to what was withheld from an employees wages, and it cannot hold an individual responsible for employer matching funds.
If that person is you, you will be required to pay interest on the late payment as well as penalties.
How Coronavirus Stimulus Payments Affect Your Household Income
The federal governments economic impact payments and the states new stimulus payment may have you wondering how to calculate your household income, whether you want to apply for health insurance right now during special enrollment or report a change to your income.
There are a few different types of stimulus payments: federal stimulus payments, Pandemic Unemployment Compensation , and the Golden State Stimulus payment. Its important to understand which payments you need to include while calculating your household income because this determines which programs you qualify for and how much financial help you get.
Income That’s Exempt From California Tax
Certain types of income are exempt from income tax in California, although they’re taxable on your federal return. These sources of income include:
- Social Security and railroad retirement benefits that aren’t included in your federal adjusted gross income, but not other private, state, local, or federal pensions
- Interest earned on federal bonds
- State income tax refunds
- California state lottery winnings
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.
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.
Taxable Income In California
The flip side is that you’ll have to pay taxes in California on some types of income that aren’t taxed at the federal level, such as foreign-earned income that you can exclude on your federal tax return. Interest earned on municipal, state, and local bonds from outside California is also taxable.
Alimony you receive is taxable income in California, although it’s no longer taxable at the federal level. Likewise, the spouse paying alimony or spousal support is entitled to a tax deduction for that amount.
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Wait Unemployment Is Taxable
In most years, yes. The federal government considers unemployment benefits to be taxable income, although taxes are not automatically withheld from benefits payments, the way an employer might take taxes out of your paycheck. Instead, unemployment recipients must request that taxes be withheld from their benefits, and the withholding is limited to 10%.
This led to confusion and angst for the unprecedented number of workers who received jobless benefits for part of 2020 and filed their taxes for the year only to find their typical refund reduced or in some cases to be told they owe money.
Michigan resident Bridget Harwood was furloughed from her medical assistant job for three months last year when many businesses in her city closed. The unemployment benefits she received during that time also resulted in a smaller tax refund this year. Instead of the roughly $1,500 refund she typically receives, she got just $72 back.
“It was definitely a shock,” Harwood said.
It was even worse for Harwood’s eldest daughter, who worked at a fast-food restaurant before the pandemic pushed her into unemployment. Harwood filled out her daughter’s tax return and found that she owed $1,000 in federal and state taxes. When Harwood explained the situation to her daughter who had been expecting a refund to put toward a new car she “started to cry,” Harwood said.
I Received Unemployment Benefits In 2020 How Are They Taxed
Unemployment benefits are subject to federal taxes, but the American Rescue Plan created new thresholds for whats taxable in this case.
If your modified adjusted gross income is less than $150,000, for singles or married people filing separately, you dont have to pay taxes on the first $10,200 of 2020 unemployment benefits you earned. For married people filing jointly, if each spouse received unemployment, this exemption applies to the first $10,200 worth of benefits for both individuals. If your modified AGI is $150,000 or more, this exemption does not apply to you. And the threshold stays the same for all statuses it will not double to $300, 000 if you are married and filing a joint return, for example.
If you file a Form 1040-NR , the IRS says your spouse isnt eligible for the tax break on the first $10,200 worth of benefits.
According to the Employment Development Department , Pandemic Additional Compensation that extra $600 federal benefit bump people got from March until late July, and the extra $300 federal benefit bump people started getting in late December is taxable and must be included in your gross income. However, dont confuse this money with one-off stimulus checks from the U.S. government , which are not taxable. Read more about pandemic federal benefits if you’re claiming unemployment in California.