Over the last several months many Americans received unemployment compensation for the first time as part of the stimulus package the Federal Government has deployed to offset the effects of the COVID-19 pandemic.
That’s why today we’d like to remind you that unemployment compensation is taxable. Therefore, it’s advisable to retain those taxes now to avoid owing them when you file your return next year.
The taxable benefits include all those special unemployment compensations authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
These are some of the payments for which you should check your withholding:
- Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
- Railroad unemployment compensation benefits
- Disability benefits paid as a substitute for unemployment compensation
- Trade readjustment allowances under the Trade Act of 1974
- Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974, and
- Unemployment assistance under the Airline Deregulation Act of 1978 Program
Withholding is voluntary. The law allows you to retain a flat 10% to cover all or part of your tax liability.
If you decide to proceed with the withholding, then fill the Form W4V-Voluntary Withholding Request and remember that you are not supposed to send the form to the IRS, but to the agency that pays the benefits. If that agency has its own form, then use that form instead.
Taxpayers who decide not to withhold, or if their withholding is not enough, they can make a quarterly payment of estimated taxes. In that case, there are some dates to keep in mind. The deadline for the first two quarters of 2020 expired on July 15, 2020. The deadlines for the third and for quarters are September 15, 2020, and January 15, 2020, respectively.
Contact the Experts at JT Tax Services
At JT Tax Services we have the experience, the knowledge, and the drive to assist you. With our advice, you can file your taxes with the peace of mind that comes with knowing that you are limiting your liability while staying compliant with federal and state tax regulations.
The COVID-19 outbreak has had a tangible impact on taxes. There are many credits and benefits available but also some new obligations you should be aware of. Our experts can help you navigate these new circumstances with confidence.