August 21st, 2020 Brad Hennebert
You likely are aware of the record numbers of Americans out of work and filing for unemployment benefits this year due to the COVID-19 shutdowns. At times, over a million every week. However, many of you may not realize how this can impact you when it comes to filing your 2020 tax return.
Losing your job lowers your income, which can lower your taxes due but may allow you to qualify for the Earned Income Tax Credit. You can still claim the credit for child and dependent expenses (i.e. daycare) while you are looking for a job, as long as you have earned income at some point during the year. However, there is NO tax credit or deduction just for losing your job.
Yes, unemployment compensation in the United States is taxable income and you must report it on your federal tax return. Next year, you will receive a Form 1099-G: Certain Government Payments (Info Copy Only), which will reflect the amount you were paid and any federal income tax you elected to have withheld. Complete a From W-4V: Voluntary Withholding Request and the paying office (i.e. Ohio Job and Family Services) can withhold tax at 10% of your payments. Without this, you may end up making estimated tax payments throughout the year, and/or you may owe taxes next April!
Also, unemployment assistance from a union may or may not be deductible, as well as any severance pay and accumulated vacation/sick time your employer paid out!
As part of Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, Pandemic Unemployment Assistance (PUA) is available to those who are self-employed, seeking part-time employment or did not qualify for traditional unemployment compensation. To verify your income to receive PUA, you may need to provide current year tax forms.
Contact us now! We can help and get you ahead of the game for next April!