Due to the COVID-19 outbreak, over the last several months millions of Americans have received taxable unemployment compensation for the first time.
With every “first” come many details that are worth keeping in mind. That’s why today we’d like to remind you that unemployment compensation is taxable, and it’s advisable to retain those taxes now to avoid owing them when you file your return next year.
The taxable benefits include all those special unemployment compensations authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
These are some of the payments for which you should check your withholding:
- Unemployment compensation includes: Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
- Railroad unemployment compensation benefits
- Disability benefits paid as a substitute for unemployment compensation
- Trade readjustment allowances under the Trade Act of 1974
- Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974, and
- Unemployment assistance under the Airline Deregulation Act of 1978 Program
Withholding Is Voluntary
Withholding is voluntary. The law allows you to retain a flat 10% to cover all or part of your tax liability. If you decide to proceed with the withholding, then fill the Form W4V-Voluntary Wittholding Request and remember that you are not supposed to send the form to the IRS, but to the agency that pays the benefits. If that agency has its own form, then use that form instead.
If you decide not to withhold, or if your withholding is not enough, then you can make a quarterly payment of estimated taxes. These are the deadlines for the payments:
- For the two first quarters of 2020: deadline expired July 15, 2020
- For the third quarter of 2020: deadline September 15, 2020
- For the fourth quarter of 2020: deadline January 15, 2021
Contact the Experts at Meadville Tax Service
The COVID-19 outbreak has had a noticeable impact on the world of taxes. Many deductions and benefits are available, but there are also many other steps to keep in mind, like the one we reviewed today.
Stay on top of your taxes in this complex landscape. Seek assistance from the experts at Meadville Tax Service and rest easy knowing that a dependable group of tax professionals has your back.
At Meadville Tax Service we have made it our mission to assist you so you can file your taxes efficiently, limiting your tax liability while staying compliant with federal tax regulations.