By September 1, 2020 Financial education
The following information is provided by Love My Credit Union Rewards and TurboTax.
If you lost your job or were furloughed this year, we are so sorry. If you were lucky, your company may have paid you furlough or severance. Either way, you likely applied for unemployment benefits, once you could get through on the busy, busy phone lines. And now, with tax time approaching, you may wonder if you owe taxes on the money you received, and if so, when and how you need to pay the tax.
Is my furlough pay or severance taxable?
Unfortunately, yes, any furlough pay and severance benefits from your employer is taxable, and your employer probably withheld taxes from that pay. The income and withholding will be included in the W-2 you receive in January. You’ll report the W-2 information on your tax return for 2020 and pay any taxes still due or, fingers crossed, claim a refund for overpayment.
I got laid off, do I have to pay tax on my unemployment?
If you received unemployment benefits you will owe federal income tax on those benefits, and you’ll receive a Form 1099G reporting that income to you. You may owe state income taxes as well, unless you live in one of the six states that don’t tax unemployment benefits (California, Montana, New Jersey, Oregon, Pennsylvania and Virginia), or one of the seven states that don’t have a state income tax (including Washington State).
Withholding taxes are not automatically taken out of unemployment benefits, so unless you opted to have taxes withheld anyway, no taxes were withheld. At this point some you are beginning to get the not-so-lovely picture. Taxable income received; no taxes withheld – uh oh! – taxes owed.
Isn’t the extra $600 federal benefit exempt from tax?
No, afraid not. The State unemployment benefits were boosted by a $600 per week Pandemic Unemployment Assistance supplement through June 2020. That supplement will be included in your taxable income on Form 1099G.
Here’s a small glimmer of hope
Your tax bracket will be low if your income for the year was low, which reduces the taxes you owe. But even if you don’t plan to file and pay until the April 15 filing deadline, consider preparing your tax return soon after the first of the year. That will give you a realistic picture of your tax situation plus a few extra months to find the money to pay the taxes.
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The information in this article for general educational purposes only and not intended to provide specific advice or recommendations.Please discuss your particular circumstances with an appropriate professional before taking action.