Unemployment Benefits - Taxable Income or Non-taxable?
Does It Make a Difference if Benefits Were Federal or State?
Background
Due to the Covid-19 pandemic, millions of taxpayers who lost their jobs, had their hours reduced, or were self-employed and had their revenues decline received unemployment compensation (UC) benefits. Some taxpayers received the typical UC benefits paid by their state. Others may have also received UC benefits through their state's UC website that were paid by the federal government. Are these UC benefits and stimulus check payments ($1,200) that taxpayers received taxable income?
The Good and Bad News
The Covid-19 stimulus checks are not taxable income. 😃 Your 2020 return (filed in 2021) will include a reconciliation so that if you received less than the full amount you were entitled to receive, an adjustment will be made to provide you with the full amount due you.
Unfortunately, both the state and federal UC received are subject to federal income tax. 😭
State taxability varies by state. If you are a PA resident, the good news is that any type of UC benefit received is non-taxable. 😃
Tax Planning Tip #1
Caution: Some states have stopped issuing Form 1099-G to show UC payments made. Accordingly, you need to track the UC benefits received and any taxes withheld to file a complete and accurate 2020 return.
Tax Planning Tip #2
If you are in an installment payment plan with the IRS, remember that you must remain compliant by filing your tax returns and paying all of the taxes due each year. Since some taxpayers have no taxes withheld or have only 10% withheld, they may find themselves with a balance due come April 15, 2021 which they are unable to pay in full. Be sure to make estimated tax payments or increase your tax withholdings to remain tax compliant or else the IRS may terminate your installment payment plan.
For real estate professionals with IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.
Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 18 years. His blogs http://www.taxexpertblog.com and http://www.stopmytaxproblems.com discuss pertinent tax and business issues.
By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.
Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax debt problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.
If you have any IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.
Disclaimer: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information. Should you wish to engage our firm to represent you, please call us at (610) 594-2601.
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