Unemployment has been a lifesaver for many people during 2020. However, it isn't free money.
By law, unemployment compensation is taxable and must be reported on a 2020 federal income tax return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.
Taxpayers can have federal taxes withheld from their unemployment compensation. Federal tax is withheld at a flat 10% rate on unemployment compensation.
Unemployment compensation will also be taxed at the state level. Unemployment benefits are tax-exempt if you live in California, Montana, New Jersey, Oregon, Pennsylvania, and Virginia. Additionally, seven states —Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming — do not levy any state income taxes.
I help people all over the United States. If you or someone you know needs help with their 2020 tax return, please contact me at 702-469-9426 or cstevens@numbercruncherllc.tax.
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