March 20, 2023

Have You Lost Your Job? Here's What You Need to Know About Taxes

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In 2022 alone, there were approximately 15.4 million layoffs in the United States as per one recent study. About 6.9 million of them happened in the last half of the year, from August to December. It's also worth noting that this is certainly nothing new. It has been estimated that about 40% of people have been laid off (or fired) from a job at least once in their lifetime, and about half the country experiences full-blown layoff anxiety on a regular basis.

Whether you are laid off or fired, the chances are high that you will quickly find yourself on unemployment. While this can absolutely provide some much-needed financial relief at an important part of your life, there are some things about potential tax implications that you'll definitely want to be aware of moving forward.

Losing Your Job and Taxes: Breaking Things Down

Whenever people find themselves on unemployment, one of the first things they often ask themselves is whether that money is taxable. To put it simply, it likely is.

When you fill out your income taxes the following year, the IRS will require you to report any unemployment income that you received. You will do this with Form 1099-G. The vast majority of all states do tax this type of unemployment income, so it's likely that you'll have to pay something on it. The only exception to that is those states that don't have any income taxes at all or those that have laws on the book that make unemployment benefits separate from regular income as far as tax purposes are concerned.

When it comes to actually paying any money owed from your unemployment benefits, one of the easiest ways to do it actually involves a choice that you'll make when you sign up in the first place. At that time, you'll be able to request that the government take 10% out of each check for the express purpose of being used to pay your taxes. If you don't want to do that, you can also make estimated payments on a quarterly basis - similar to what you would do if you were self-employed.

Note that if you choose to go that second route, you will make estimated payments four times - on April 15, on June 15, on September 15, and on January 15.Note that if the 15thfalls on a Saturday, Sunday, or Holiday the due date moves to the next business day.

Additional Considerations About Unemployment Benefits and Income Taxes

Another critical thing to remember when it comes to unemployment benefits and your taxes is that signing up at all could impact your ability to get certain other tax credits that you might be depending on. The primary example of this is the Earned Income Tax Credit, otherwise known as the EITC.

Many people don't realize that unemployment benefits are not actually considered to be earned income. Because of this, depending on how much money you received in unemployment, it could reduce your EITC amount - or prevent you from getting it at all.

The EITC is worth up to a maximum of $6,935, for example. Your credit amount may be reduced to the point where you don't get it at all. The same is true of the Child Tax Credit or CTC, which is worth $2,000 per child for your 2022 taxes.

Finally, it's important to understand that if you're on unemployment due to the sudden loss of a job, it's entirely possible that you took advantage of other government benefits throughout the year as well. Maybe you needed housing or childcare subsidies, for example, or you're on SNAP benefits. If you're worried that they're taxable like unemployment benefits, don't be - this typically is not the case.

Having said that, filing your income taxes can certainly be a complicated scenario in the best of years, but it is especially so once you start to enter things like unemployment benefits into the equation. This is why, if you have any questions, it's always important to consult the help of trained financial professionals. They can eliminate all the guessing and confusion from the equation, allowing you access to every last dollar that you're entitled to with as few potential issues as possible.

If you'd like to find out more information about unemployment benefits and the potential tax implications they bring with them, or if you have any additional questions you'd like to discuss with someone in a bit more detail, please don't hesitate to contact us today.

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Have You Lost Your Job? Here's What You Need to Know About Taxes