Preparing Taxes Sooner Than Later Could Prevent An Unwanted Surprise If You Claimed Unemployment
Tax season is quickly approaching. That’s why local accountants say those who filed for unemployment benefits for the first time amid COVID-19 should start preparing if they haven’t already.
“When you take the benefits they let you know that it is taxable. They give you the option to withhold the tax. But unfortunately they also give you the option to not withhold your tax. In some ways I almost wish that they did withhold the tax so people aren’t caught off guard like they may be by the end of the year,” said Senior Accountant at TRS CPA Group Matthew Bossle.
While stimulus checks are not taxable because they’re considered a credit, unemployment benefits are. Bossle says people who did not and are not withholding taxes from their unemployment checks could be in for a big surprise when they file taxes this year. He says you could be paying the IRS as much as 25% of your total unemployment payments.
“Put money aside as much as you can, especially the stimulus money coming in. You may have to use that for taxes if you haven’t withheld from the start. My recommendation is to always withhold on an unemployment check right from the start so you don’t have to worry about the future,” said Bossle.
Bossle adds that that payment could be even more if you’re married. He says it could be as much as 40 percent of your unemployment payments. Bossle says that’s because being married could put you in a higher tax bracket.
So what should you do if you are just finding out about all of this now? CG Accounting Group accountant Phillip Cheung says preparing your taxes early could help.
“I recommend having 2020 taxes prepared early to determine if a payment is going to be needed and attempt to make the payment by April 15th,” said Cheung. “For benefits received in 2021, I would recommend contacting the Department of Labor to elect for withholding of taxes. The best route is always to contact a professional yourself, as each financial situation is unique.”
Source: WMDT47 ABC News