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Unemployment Compensation is Taxable

With many Americans on unemployment as a result of Covid-19, the IRS wants to remind taxpayers that unemployment compensation is taxable so people should plan on that tax liability being on their 2020 tax returns. It is always a good idea to have taxes withheld from each payment so that you won’t get surprised with a big tax bill when you go to file your 2020 return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.

The withholding of taxes from your unemployment benefits is taxable and law allows a flat 10% to be withheld. You want to fill out the following form to have the taxes withheld:

If you would like to get a ballpark snapshot if you are having enough taxes withheld the IRS recommends using their withholding calculator:

So if you did receive unemployment benefits in 2020 be on the lookout for Form 1099-G in January 2020, this will show how much you received and what figures need to be reported on your tax return.

Please consult your tax advisor on all the above issues.

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