Any time you receive money from the government or your job, always approach with caution and save for taxes.
Odds are you’ve been affected by the recent global pandemic of COVID-19, or coronavirus. Not only has this virus impacted the health of many, it’s negatively impacted the global economy in ways not seen. Small businesses have been forced to close with a genuine fear that many will remain closed forever.
The result of these closures has left many individuals without a job. In the latest number, unemployment jumped to 4.4%, with many fearing it’ll rise north of 10%. Millions are without jobs and now seeking unemployment.
Traditionally, unemployment is filed for when an employee is fired or let go from their job. Now, the government has stepped in to assist people with a more robust unemployment package.
Qualification for Unemployment Benefits
With the latest legislation, the CARES Act aims to help sustain people unexpectedly laid off or fired from their job.
The first question is: do you qualify? You do qualify for CARES Act benefits if you are unable to work or are working reduced hours as a result of the coronavirus. This is a broad qualification aimed to help the millions of people sustain their financial well-being. A couple more specific qualifications include workplace closure or a job fell through due to COVID-19.
Those that take advantage will see their normal unemployment income along with an additional $600 per week. This dollar amount is expected to significantly help many people who do not have enough income to cover essential living expenses.
Do I Have to Pay Taxes on Unemployment Benefits?
What are the tax implications of accepting this robust unemployment package?
Unfortunately, while the stimulus payment checks are not taxable, you will be responsible for paying Federal Income tax on any unemployment benefits. A good rule of thumb would be to reserve about 22% of this income to be paid in taxes. Of course, everyone's tax situation is different, but this is a safe estimate to go by when setting money aside.
Luckily, there is no federal withholding tax for Social Security should you accept unemployment benefits. This will save you just over 7% in taxes.
Lastly, you may have to pay state taxes, but that will vary state by state. You can find more information on your local state government’s website, where you may find answers to COVID-19 related questions.
Any time you receive money from the government or your job, always approach with caution and save for taxes. If you save too much, you’ll have a nice payday at tax time. At worst, you save nothing and are left with a hefty tax bill.
This is one of the largest government stimulus programs in history, there are still tax implications. Set money aside from each paycheck and you should be well positioned.