Unemployment compensation is a compensation payment at regular intervals to an unemployed worker as defined in the Merriam-Webster dictionary. Not to mention, to the one who has been laid off. What is an unemployment benefit? The benefit provides temporary income to an individual, if the business shuts down. Hence, the business may shut down for any unforeseen reason through no fault of their own. In addition to Social Security and Medicare taxes, employers also have to pay federal and state unemployment taxes. What is an Unemployment Tax? This tax pays for temporary unemployment benefits for individuals terminated from their jobs without cause.
During the COVID-19 pandemic, many businesses began to furlough employees or permanently closed. The former employee is now jobless without any benefits. The terms unemployment compensation and unemployment benefits are one in the same. The employee files for the benefit in the state they previously worked in. It is best to not file in the state where they live, if they worked in another state. Each state government has their own portal to file for unemployment benefits. As a result, many individuals who are not eligible to receive regular state unemployment benefits were without income during the pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is the $2 trillion Coronavirus stimulus bill. The CARES, Act includes temporary financial assistance for a gig worker or self-employed individuals.
Are there any tax concerns in collecting state unemployment benefits? Yes. Many individuals are unaware they need to report and pay tax on unemployment. What can I do, I do not want to owe taxes? As a matter of fact, an individual who collects the benefit can voluntarily request funds to be withheld. Complete the IRS Form W-4V and file it with the state government agency. Also, an individual can desire not to have the federal amount withheld from the benefit funds.
Therefore, consider saving 10% of the total funds received. Open an account to deposit funds in the bank to offset a tax liability. You can file the IRS Form 1040-ES to make estimated tax payments to the federal government. The taxpayer can send a tax payment to the state government. What form will I receive to file on the tax return? Thus, the state agency will send the IRS Form 1099-G to file on a tax return. Please click here to view the IRS Publication 5444 – Did you receive Unemployment Benefits?
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