Money received from the government usually comes with a catch. Coronavirus stimulus benefits come with a few that may surprise some that receive it. But there are some differences in what’s taxable and what’s not.
Unemployment Benefits Are Taxable
Unemployed workers who accept unemployment benefits should not be surprised this money is considered taxable income. Then again, unemployment benefits were never tax-free.
So, the extra $600 many Americans received on top of their unemployment benefits is taxable. This boosted amount came to an end this month and may be extended under with a lower weekly amount under the newly proposed HEALS act.
Typically, recipients have two options when it comes to paying taxes on unemployment income. They can pay quarterly estimated taxes (or pay when taxes are due) or they can have the income taxes withheld. To do that, you can fill out a Form W-4V with the Internal Revenue Service (IRS) and your state government will withhold part of your payment to pay toward federal and state income taxes. Paying quarterly taxes is a bit more complicated. However,
Keep in mind, that many are not having any portion of their unemployment check withheld – so expect taxes to come due.
Stimulus Checks Are Not Taxable
Now, here’s the good news. The $1,200 stimulus checks are not taxable, nor are the checks for $500 eligible parents received for each child. Regarding these checks, he IRS states, “the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer’s refund or increase the amount they owe when they file their 2020 tax return next year.”
So, remember not to confuse the extra $600 per week in unemployment with your $1,200 stimulus check.
As always, it’s best to do some planning if you’re worried about a surprise tax bill. You may owe more next year but then again, you may also owe less. Only you (or a tax specialist) can go through the numbers and find out.