This whole corona virus, covid-19, or whatever doesn’t seem to want to leave us alone. In addition to all the medical implications, the federal government, with its big stimulus package, made all sorts of financial changes.
One of the big items was the federal unemployment payments, which was available in addition to the normal state unemployment. That was the $600 a week that expired on July 31. Hopefully, no one made life-style altering decisions based on those payments, because they have now expired. We had clients, who are in supervisory positions, tell us that some folks refused to return to work because they liked the $2400 a month they were getting for ‘free’. They didn’t feel the need to go back to work. Washington hasn’t decided what the next round of stimulus payments is going to look like yet, so that decision to not return to work could prove to be disastrous.
Is it going to hurt me??
When it is all said and done, one of the big questions is this. Is that $600/week taxable? Will it hurt me next year at tax time? The answers are yes and maybe. The federal unemployment, $600/week, is definitely taxable income. This should come as no surprise because state unemployment has always been taxable. So, if you were getting those payments and did not have federal/state withholding taken out, it could be a problem.
How bad is it??
How big a problem we are talking about depends on your income, filing status and dependents. If you already have taxable income, the federal unemployment will be taxable. If you haven’t reached the point where your income is taxable, the federal unemployment may or may not be taxable. If you normally get the big credits, like earned income or child tax credits, your refund may be a little less because of the taxes due on the unemployment amount.
When it is all said and done, there is no ‘one size fits all’ answer to the ‘is it taxable’ question. Like any other tax situation, yours is most likely different from that of your next door neighbor, your brother-in-law or your co-worker. At tax time, we will be ready, wiling and able to help you sort out the details and get a correct tax return filed.