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Since the COVID-19 pandemic ravaged the U.S. economy, millions of Americans have been receiving unemployment compensation; for many, it is their first time. Since unemployment numbers have skyrocketed over the past few months, the Internal Revenue Service (IRS) recently issued a reminder for those receiving unemployment payments, stating they may withhold taxes from their benefits now to prevent owing taxes on this income when they file a federal tax return in 2021. Taxable benefits consist of any unemployment payments enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Doeren Mayhew’s tax advisors provide insights on what you need to know about withholding if you’ve received unemployment compensation as a result of the pandemic.
It’s important to note that withholding is voluntary, but if a beneficiary chooses to do so, they must fill out Form W-4V (Voluntary Withholding Request) and submit to the agency paying their benefits. In the event a beneficiary does not elect to withhold taxes or if the withholding amount is not enough, they have the option to make quarterly tax payments. Payment for the first two quarters of 2020 was due Jul. 15, 2020, payment for the third quarter is due Sept. 15, 2020, and payment for the fourth quarter is due Jan. 15, 2021.
Taxpayers may be surprised to learn they are actually beneficiaries of unemployment benefits and can elect to have taxes withheld. If you have received any of the following, be sure to check your withholding amounts:
In the event a beneficiary returns to work before the end of the year, they may use the IRS Tax Withholding Estimator to ensure enough taxes are being withheld each pay period. When January 2021 rolls around, beneficiaries should receive Form 1099-G (Certain Government Payments) from their benefits agency. This form will reveal the amount of unemployment compensation paid in 2020 in Box ,1 as well as any federal income taxes withheld in Box 4. Taxpayers will then report these numbers with their W-2 income on their federal tax returns.
If you have questions regarding withholding taxes on your unemployment compensation or reporting them, contact Doeren Mayhew’s tax advisors today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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