Have you lost your job? If you were laid off from your position at some point in the last year, at least take comfort that you are not alone. 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. Experts estimate that about 40% of people have been laid off (or fired) from a job at least once in their lifetime. Additionally, nearly half the country experiences full-blown layoff anxiety regularly. If you fall into this category, here’s what you need to know about taxes.
Whether you are laid off or fired, the chances are high that you will quickly receive unemployment benefits. 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 want to be aware of moving forward.
Losing Your Job and Taxes: Breaking Things Down
Whenever people find themselves on unemployment assistance, 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 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 for it. The only exception is those states that don’t have any income taxes at all or those with laws on the book that separate unemployment benefits 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 involves a choice that you’ll make when you sign up in the first place. At that time, you can request that the government take 10% of each check to pay your taxes. If you don’t want to do that, you can also make estimated quarterly payments – 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 January 15. Note that if the 15th falls 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 regarding unemployment benefits and your taxes is that signing up at all could impact your ability to get certain other tax credits you might be depending on. For example, 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.
For example, the EITC is worth up to a maximum of $6,935. Your credit amount may be reduced to the point where you don’t get it. The same applies to the Child Tax Credit or CTC, 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 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. However, 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 you’re entitled to with as few potential issues as possible.
Have You Lost Your Job? FSL Tax & Accounting Services Can Help!
Contact the experts at FSL Tax & Accounting Services if you’d like to learn more about unemployment benefits and the potential tax implications. Or, if you have any additional questions you’d like to discuss with someone in more detail, call us at 678-702-7218 for a free consultation, or complete the online form.