How Not to Get Slammed with a Huge Tax Bill on Your Unemployment Benefits
Millions of people in the United States are receiving unemployment assistance. If you're receiving these benefits, how can you make sure you don't get hit with a big bill come tax time?
The federal government sent out 130 million coronavirus stimulus payments of $1200 for adults, and $500 for children. Those payments are not taxable - that's the good news. Unemployment assistance - including the extra $600 per week - is considered taxable income, so you'll need to pay both federal and state taxes on that income.
So what can you do to avoid getting hit with a huge tax bill? According to CNBC, there are three things you can do.
1. Have your taxes automatically withheld. When you apply for benefits, you can ask to have the tax automatically withheld from your payments. This is the easiest way to go. If you're already receiving benefits and want to do this, you can fill out a form from the IRS, or make adjustments when you certify your claim weekly.
2. Make estimated tax payments. If you're you a small business owner, or self-employed, you may want to make estimated payments - but calculating them can get complicated. This isn't the best option for most unemployed people.
3. Save part of your check to cover the tax bill. Try to put aside 10% of each check to help cover the tax bill when it comes due.
Of course, if you're struggling to put food on the table and keep the lights on, your priorities may be different. In that case, you may just want to take the chance and deal with the tax bill once the economy recovers and you have a form of regular income.