Don’t be surprised at tax time: unemployment benefits have tax implications
A record number of Americans are relying on unemployment benefits this year as COVID-19 cases climb. Millions of first-time unemployed individuals may not understand the tax implications from receiving unemployment benefits and what they can mean to their tax refunds. Reaching out to an H&R Block tax professional or utilizing H&R Block’s online calculator can help make better sense of how unemployment benefits may impact your expected tax refund.
Avoid a tax-time surprise with a little planning
For anyone who received unemployment benefits in 2020, it’s important to know they are generally considered taxable income. Those receiving enhanced unemployment compensation are getting a much-needed financial boost this year, but they could be unknowingly caught up in one of these snags:
- Didn’t know taxes can be withheld when they signed up for benefits.
- Opted not to withhold a portion for federal income taxes to maximize their unemployment check.
Either action may lead to a larger tax liability, resulting in a surprise tax bill or a significantly reduced refund. Recipients can minimize both of these unpleasant surprises and regain financial confidence with a few easy-to-follow steps:
- Recognize your current financial situation: Evaluate income from earlier in the year and any taxes withheld. This knowledge can help you understand if you can expect a smaller tax-time refund or make a plan to address your balance so you can set aside money now.
- Select the right tools or collaborate with a tax professional: Now is a good time to set up for your desired outcome. Determining how much withholding you need or how much to save can feel confusing – especially if you received unemployment benefits this year. Reach out to your trusted H&R Block tax professional for personalized guidance or consider using an online tool like H&R Block’s W-4 calculator or the IRS’ withholding estimator.
We have more control over our desired outcomes than we often think and a little planning now with the right tax professional can have big benefits for your financial confidence.
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