Money experts reminding people that unemployment benefits are taxable
MARYLAND – Money experts are reminding people that the extra $600 they may be collecting in unemployment payments provided by the CARES Act are taxable. That means that people should prepare for their taxes to be higher next year when filing. “Folks should not be surprised that this is taxable because it is still paid in the same spirit of state unemployment by the same state unemployment agency and reported at the end of the year,” said CG Accounting Group accountant Phillip Cheung.
Cheung says that planning is key right now. He also says that people should remember that any form of income replacement is taxable. Cheung tells us that there are ways people can help prepare now and save later, including when it comes to applying for unemployment benefits. “Notify the department of unemployment to do a discretionary withholding with each benefit payment so that it will help not create a surprise at the end of the year,” said Cheung.
Cheung says that choosing the option to have federal taxes withheld from unemployment benefits could help people save in the long run. However, he also recommends taking your personal financial situation into account when considering this option. “Will I be overpaying my taxes? Do I need that money presently to fund the essential expenses of my household- the food and utilities?” are some of the questions Cheung says you should ask yourself.
In addition to the unemployment payments, Cheung says people should be aware that the $1,200 stimulus checks might impact next years taxes as well. “The stimulus check is an advance tax credit. So it is not taxable, but you might find yourself at the end of the year having not enough credit to offset your tax liability because of the advance payment of the stimulus check,” said Cheung.