Millions of Americans lost work during a pandemic COVID-19, and many applying for unemployment benefits may face an unexpected tax bill next year. This writes Fox Business.
The IRS requires people to report income received in the form of unemployment benefits. Some States also provide tax incentives.
However, when you get benefits, withholding taxes are usually not performed, that is, the people themselves have to arrange to deduct tax from benefits.
And even in this case, the tax is usually 10%, which may not be enough for some people receiving extended unemployment benefits.
“Withholding of unemployment benefits may not cover the actual tax liabilities,” said Eric Bronnenkant, head of tax Department Betterment. This $600 essentially allowed people to earn more, it is unlikely that the 10% withholding will cover the actual tax.”
In addition, Bronnenkant noted that people can opt out of withholding money, because they need more money to cover basic expenses.
Others may consider this as a “problem next year,” he added.
How important is this issue for the next tax season depends on the future of the US economy and the extent to which legislators decide to extend extended unemployment benefits in the forthcoming law on benefits.
The validity of an additional $600 to the unemployment benefits provided for by the law CARES, expired at the end of July. The number of benefit recipients as of July 25 amounted to about 16 million people.
But the issue of taxation becomes problematic for many, especially for those who first receives benefits.
According to a recent poll, 37% of Americans believed that unemployment benefits are not considered taxable income.
More than half of respondents did not know that they had to uderzhivat taxes from unemployment benefits.
If your checks are not deducted taxes, you may need to make quarterly estimated payments to the IRS. At the time of submission of the Declaration will need to pay a tax of $1,000 or more.