The coronavirus pandemic has affected Americans from all walks of life. Millions filed for unemployment benefits because the businesses they used to work have closed. If you are one of them, you may ask your tax attorney in Los Angeles about your unemployment benefits. Are the payments taxable?
WHAT DOES THE TAX ATTORNEY IN LOS ANGELES SAY ABOUT IT?
Unfortunately, unemployment payments are considered taxable income. The IRS has a broad definition of what income is. For the IRS, gross income means all income no matter where you get it from.
You may check out the IRS website to review the unemployment compensation guide. It states that if you get unemployment compensation, you will receive a certain form that shows you how much you received. You should include it as your income.
Your state will send you a form that shows the number of unemployment benefits you received for a given tax year. The IRS will also get this notice. If you failed to include it in your tax return, then it may lead to a tax penalty.
Penalties will include licensing consequences, interest on unpaid taxes, criminal charges, and several others.
WHAT IF THE INCOME IS BELOW A CERTAIN LEVEL?
On the other hand, if your income is too low, you may not owe any taxes from your unemployment benefits. Instead, you will get a refund of some of the taxes from your unemployment benefits. If you belong to a low-income household, you will either pay too little or no income tax.
However, you should still talk to a tax attorney regarding this matter to clear everything.
Furthermore, it is not required to withhold taxes from the said benefits. However, it may still be a good idea. It is better that way than knowing later on that you owe the IRS. You may badly need the money. However, you can avoid surprises during tax time if you request to withhold the unemployment benefits.
This is especially true if you earned income this year or be employed again at the end of 2020. You will be in a higher tax bracket and may qualify for credits to offset your earnings.
The benefits may be hundreds of dollars a week. You may consider taking the money and increase your deductions later on when you get back to work.
If you request the withholding, you will fill out form W-4V. You may fill it out online. If you are collecting unemployment benefits, you may request the W-4V. Then, you can change your withholding or stop it.
It can be confusing on how to file your taxes involving the unemployment benefits. That’s why you must always consult a tax attorney to help you out.
Keep in mind that a simple mistake can still lead to an IRS audit. To avoid that, you must do your taxes adequately, no matter where the pandemic leads us.