The CARES Act expanded unemployment benefits by providing for an additional $600 weekly payment through July 25, 2020. These payments are in addition to State unemployment benefits. For some beneficiaries, such as those who are California residents, the total monthly unemployment benefits could be as much as $7,600 per month.
For those who are receiving benefits it is important to know that unemployment benefits are taxable by the IRS and will be reported on form 1099-G by the issuing government agency. Tax withholding elections for unemployment benefits are voluntary. Beneficiaries may elect to withhold taxes by submitting Form W4-V. If no election is made, then any tax liability will be owed when the tax return is filed.
Given the unprecedented number of unemployment claims filed, along with the additional $600 per week, taxpayers may want to review their current tax withholdings and make any necessary adjustments to avoid any tax surprises when filing their 2020 income tax returns. Large IRS tax balances that exceed certain thresholds may be subject to underpayment penalties.
Fortunately, many states do not tax unemployment benefits. But it is important to check your state’s policy.