A large number of unemployed Americans who received unemployment benefits as a result of the COVID-19 outbreak may be in for a rude awakening when they file their taxes this year.
This is due to the fact that unemployment benefits, including any additional money distributed through government assistance programs, are considered taxable income.
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Unemployment benefits differ from state to state, but the $1.9 trillion American Rescue Plan, which Democrats signed into law last March and which provides recipients with an additional $300 per week through the beginning of September, has made the assistance more generous.
Before the increased benefits expired on September 6, 2021, the average laid-off worker was receiving approximately $630 per week in benefits.
At the end of December 2020, Congress also passed a $900 billion coronavirus relief plan, which increased jobless assistance by $300 per week until the middle of March 2021.
Employees received an additional $300 per week on top of their regular state benefits, and the programs also provided assistance to workers who were not typically eligible for assistance and extended state unemployment benefits after they had been exhausted.
Nevertheless, many Americans who received the benefits are likely to be unaware that the money they received was taxable – or that taxes from the help are not routinely withheld – leaving them with a surprise tax refund when they submit their returns.
Even more perplexing for jobless assistance claimants is the fact that Congress eliminated federal income taxes on up to $10,200 in 2020 unemployment insurance benefits for individuals earning less than $150,000 per year last year.
This year’s tax-filing season, which began on January 24 and will conclude on April 18, will not be covered by the exemption.
Considering that the benefits are taxable at the federal level as well as in most states (the only states that are completely exempt from taxation are California, New Jersey, Oregon, Pennsylvania, and Virginia),
those who receive them may find themselves with a tax bill this year, regardless of whether or not they have lost their jobs. When you get unemployment benefits, you are not required to pay Social Security or Medicare taxes.
You will need to file a tax return if you earn a certain amount of money and your filing status will determine whether you need to do so.
According to figures from the left-leaning Century Foundation, there were around 25 million Americans who got unemployment benefits in the past year.
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The following choices were available to beneficiaries in order to prevent an unexpected tax bill the following year:
Taxes should be withheld:
When you get benefits for the first time, your state government will issue you an IRS Form 1099-G, which is a tax form. When you receive your remuneration,
you have the option of having income taxes deducted from it (the total federal tax withheld will appear in Box 4, and the state tax withheld will appear in Box 110).
Alternatively, if you are already receiving payments and would like the government to deduct your tax obligation from the money before you receive it, as it does with a traditional paycheck, you must file Form W-4V with the Internal Revenue Service.
This notifies the payer (the state government) that 10 percent of your paycheck will be withheld for federal income tax purposes.
Make quarterly payments to the Internal Revenue Service:
If you choose not to have your taxes withheld by the government, you can choose to make an estimated payment every quarter in lieu of having them withheld.