Tax Breaks for Charitable Giving: Maximize Your Impact and Your Savings
Category: Business
YES, and this is not always clear.
If you have received unemployment insurance benefits this year, you may not be aware that you will have to pay some of the money that you received back to the government.
That is because the benefits you receive from unemployment insurance are considered income and are taxable as such. The state almost never withholds taxes. This means that you will have an amount due when we finish your taxes next year.
We recommend estimating how much tax you will owe and putting that money aside now to avoid a surprise come tax time.
The rest of this post discusses what unemployment insurance is and how the COVID crisis changed who qualifies.
Unemployment Insurance is a state-federal program that provides cash to eligible unemployed workers. Defining the terms of unemployment is complicated because each state administers its UI program according to guidelines established by federal law.
So, the rules depend on the state. Each state sets rules for eligibility, benefit amounts, and how long recipients can receive the benefits.
However, the basic idea is that unemployment insurance provides temporary financial assistance to workers who lose their job through no fault of their own.
Importantly, unemployment insurance benefits are subject to federal and most state income taxes, so you must report the payment as income on your tax return. You can ask the state to withhold taxes, but in many cases, they will not have withheld taxes – so you will owe the taxes due.
Eligibility depends on the state, but the basic rules are:
Traditionally, if you are self-employed, you do not qualify for unemployment insurance. The CARES Act signed into law in March 2020 as a response to the COVID-19 crisis, changed that for 2020.
Through the end of the year, self-employed individuals can also apply for up to 29 weeks of benefits.
In addition to extending unemployment benefits to self-employed individuals, the CARES Act provided an additional $600 a week to help workers deal with unprecedented economic slowing as a result of COVID-19.
These extended benefits expired on July 31, 2020, and as of August 20, there is no program replacing them. However, self-employed individuals still qualify for regular unemployment insurance benefits.
On August 8, the president created executive actions to replace the $600 benefit with a $400 benefit, sort of.
The rules put in place stated that states would have to pay $100 of the additional amount while the federal government would pay the additional $300. The problem is that the president doesn’t have access to enough funds to cover the $300, and most states have already run out of money and can’t pay the additional $100.
As of August 20, 2020, only three states were planning on implementing this $400 benefit: Montana, West Virginia, and Kentucky. You can read more about this issue in this excellent article from Forbes here.
Usually, benefits cover a maximum of 26 weeks, but during times of high unemployment, states can extend the length of benefits.
The CARES Act extended the benefits federally by 13 weeks, allowing for 39 weeks of benefits. Some states may add more.
Note that some states do require an additional application for the extensions.
Visit this site for more information on your state’s unemployment insurance program.
You can visit the Comparison of State UI Laws for additional information about the maximum weeks of benefit and other state-specific UI laws.
The Department of Labor has a fact sheet available here.
Find out information about individual state rules and apply for benefits here.
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Category: Business
Category: Business