No government program comes without strings attached …
From www.taxspeaker.com:
“When an individual receives unemployment compensation from the Federal or State government is reported to the individual on Form 1099-G. At the Federal tax level, it is fully taxable as ordinary income, but not subject to Social Security (FICA), Medicare or self-employment tax.
Because unemployment income is taxable, and because Federal income tax is not withheld, by default, millions of Americans could have an additional tax problem. The normal state unemployment benefit runs for 26 weeks, and the CARES Act provided 13 weeks for up to 39 weeks of benefits. In addition, the CARES Act provided $600 weekly of unemployment income through the end of July, with an extension being legislated as we speak.
Let’s do a simple example of Jane, a single lady. Jane was working at a clerical job in 2020 and earned $8,000 in gross wages through February 28th, 2020. Her withholding on that amount was $1,000. Jane was laid off on March 1, 2020 due to the pandemic and began receiving $300 weekly from her state unemployment insurance program, receiving 39 full weeks in 2020 or $11,700. Jane also received an additional $600 weekly under the CARES Act from the Federal government through the end of July, for another $12,000 in 2020 benefits.
Jane’s total 2020 AGI (Adjusted Gross Income) will be $31,700 (8,000+11,700+12,000) and, after subtracting her roughly $12,700 personal exemption (including the new $300 charity), Jane is left with $20,000 of taxable income. (We ignore the roughly $400 of EIC in this example assuming state tax may negate its overall net benefit) Tax will be (approximately) $2,200 and Jane has only had $1,000 withheld, so she is in a world of hurt here.
Solutions?
- File a W-4V to get voluntary withholding applied immediately (it won’t be enough).
- Pay a quarterly estimate or 2 or 3 of say $400 each.
- Pay the $1,200 when she files her return.
- File her 2020 return and apply for an installment agreement.”
Go here https://www.central-office-online.com/ . Contact a professional today.