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You received Unemployment, now what?

You received Unemployment, now what?If you are among the millions who received unemployment income for the first time in 2020, you are in for a necessary and early tax planning. If you are not aware of it yet, Unemployment Compensation is taxable, unfortunately. Unless you repaid the whole amount you receive, all of the unemployment compensations you received are taxable. You should receive, if you haven’t yet, Form 1099-G, if anytime during the year you receive unemployment income. Both the state traditional unemployment income and the Federal Pandemic Unemployment Compensation provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 are taxable.

 

The Federal Unemployment Compensation under CARES Act is not the same as the stimulus check. The former were those few weeks of additional $600 added to your regular/traditional unemployment, from your state. The stimulus checks, on the other hand, came directly from the IRS. The stimulus checks are not taxable. As a matter of fact, if you are qualified for the first and second round of the stimulus check but haven’t received them, you can claim them when you file your tax return this year.

 

Whether taxes were withheld or not from your unemployment income, you need to plan your tax return filing, early and adequately. Gather all your 2020 tax-related documents now. If you have been doing your taxes on your own, start working on your tax return but do not submit until you are confident you have all your tax documents processed and most recent software updates applied. If you have professionals doing your taxes, start communicating with them as soon as you are documents-ready. The IRS is not accepting 2020 returns until February 12, 2021 but the early you get your tax return ready, the early you can prepare and plan for the outcomes. Not to mention, you avoid the tax season traffic if you can get your returns done ahead of everyone else.

 

Last but not least, given the complexity of taxes and the multiple economic events happened last year, always do your due diligence when reading materials like this. This is not in-depth nor authoritative.

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