Tips & advice on getting your finances back on track.
According to Statisa.com, in April 2020, the United States unemployment rate was a staggering 14.7%. Covid-19 sent people running to their local Department of Labor to file for unemployment benefits as our job markets began to implode. For many, the stress was not just losing their job, it was trying to communicate with our unemployment system. Throughout the country, we saw frustrated Americans deal with unemployment computer systems crashing, and after many hours on hold, were told no one could take their call.
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The last thing on many unemployment recipients’ minds was income tax. Many people believe that since the money was coming from the government, any amount that needed to be taken from the check would have been. Unfortunately that is not the case. Unemployment is taxable income. You must elect to have the federal taxes and, in some states, state taxes deducted from the unemployment check. This is not something that happens automatically. Be aware that if you were the recipient of the extra $600 per week as an addition to unemployment, that $600 per week is also taxable.
If you did not make the request to have the federal taxes withheld when you first applied for unemployment, all is not lost. You can begin by making the changes when you recertify, which is a typical requirement every few weeks when receiving unemployment benefits. If that does not work, you can file an IRS form, W-4V, which is a voluntary withholding form. This form will allow you to adjust your withholding.
Read More: Dealing With Losing Your Job
A bit more complicated, but also an option, would be to file and pay quarterly estimated taxes on the income. This is traditionally done by individuals that are self-employed or work as a contractor. This avoids a big hit in April when they file their tax returns. Unfortunately, many people who are unemployed are not in a position to pay the quarterly taxes. You may find saving a bit of money out of each check is easier than the quarterly tax approach. You can then use the savings when it comes time to pay the taxes in April.
There is no question that we are facing unprecedented times both physically and financially. Maneuvering the waters of unemployment can be difficult. Please make sure that you check your state Department of Labor website for guidance. It is also a good idea to check with a tax professional to determine which option works best for you. Navicore Solutions is here to help with credit and housing counseling. Please call one of our certified credit or certified housing counselor at 1-800-992-4557.
Kim Cole is the Community Engagement Manager for Navicore Solutions. Kim provides financial education workshops and seminars to communities. Readers can submit general questions relating to personal finance, credit scoring, debt management, student loans, home finance or bankruptcy which may be highlighted in the next month’s edition. All identifying information will be kept anonymous.
Please send your questions via email to DearKim@navicoresolutions.org