Unemployment and Taxes

Did you know unemployment benefits count as taxable income? If you (or someone you know) have received unemployment income during this year when so many people have experienced job loss, here is the bigger question: Did you have taxes withheld from the payments?

If you are currently receiving unemployment income, now is a good time to check and see if federal and state income taxes are being withheld; if they are not, you should be able to change that going forward. Why does it matter? Next winter when you file your 2020 tax return, you will find out how much tax you owe on your 2020 income. If you didn’t have enough withheld from your paychecks, then you may need to pay in by April 15. It’s possible that the amount you need to pay in could be $1,000, $2,000 or even more. In addition, you may owe penalty for not having enough withheld, and/or a penalty for late payment if you cannot pay the bill in full by April 15.

What can you do now? If you received unemployment income and did NOT have taxes withheld, I would encourage you to go to the IRS Tax Withholding Estimator, and enter information about all your income for the year, along with the information it asks for about family size and other tax-related issues. Don’t worry; this is anonymous – it’s just a calculator for your own benefit. Based on the results of your calculations, you should have a pretty good idea of what to expect. If it looks like you will owe taxes, you can start saving now, or even send in one or two quarterly estimated payments using IRS form 1040 ES. Checking in with your tax preparer might also be a good idea.

The IRS recently issued a poster alerting people to take action and avoid the unpleasant surprise of a big tax bill. If you can, please consider posting it on social media or posting printed copies at your place of work, or house of worship, or at local businesses, to help others plan ahead.

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Missed tax deadline?

1040I had a call today from someone wondering about the tax deadline — is it really too late to file?  He was happy to hear that even though the official deadlines are past, he can still file his tax return.  In fact, for those of us who are required to file (that includes most people who work), we still must file a return.

Will there be a penalty for filing late?  It depends.

  1. If you have a refund coming, there is no penalty for filing late.  That’s great news for many people.  In fact, you are allowed (and encouraged) to file your tax return and claim your refund up to three years past the filing deadline.  That means that now, in May of 2016, you can still file and get your refund for 2015, 2014, and 2013.  If there is an earlier year you did not file, you can (and should) still file a return, but you will not receive your refund.
  2. If you owe the IRS, you may owe a penalty for filing late, and also for paying late.  You will also usually be charged interest.  For this reason, people who expect to owe a payment upon completion of their tax return should file an extension and send a payment at least equal to what they expect to owe before the April tax-filing deadline.  Taking these two steps means  that: a) they will not be paying their taxes late, so no penalty or interest there;  and b) the extension gives them several more months to submit their return with no late penalty.

Read more from the IRS.  And here’s a good news bonus: IRS Free File options are still available for qualifying households!

~Barb

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

    

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