If you received unemployment compensation and did not have tax withheld, you may end up owing taxes when filing your federal income tax return for 2020.
Unemployment compensation is taxable Income and must be reported on your 2020 federal income tax return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring, i.e. $600 weekly compensation.
Tax withholding is voluntary. Federal law allows any recipient to choose to have a flat 10% withheld from their benefits to cover part or all of their tax liability. To do that, you should fill out Form W-4V, Voluntary Withholding Request, and give it to the agency paying the unemployment benefits. If you did not file form W-4V to choose to have tax withheld from your unemployment compensation, you may end up owing taxes or your income tax refund may get reduced to offset any owed taxes.
If you received unemployment, you will receive Form 1099-G, Certain Government Payments, from the agency paying the benefit on or before January 31, 2021. This form will show the amount of unemployment compensation you received during 2020 and you must report this information, along with your W-2/other income, on your 2020 federal tax return.
2020 tax returns will require a lot more reconciliations and special treatments, so make sure you choose licensed and credentialed tax expert to help you. We, at Taxville Financial, will help you deal with all these changes and better understand and plan for better returns.
Michael Zachary, EA, CPHRC