If you have lost your job recently, likely, your income decreased dramatically as well. Your tax filing status has probably changed in addition to this. When you receive unemployment benefits, they are typically taxable. Although most states don’t voluntarily withhold taxes, you can request that they do so. Be certain that you add the total amount of benefits that you receive plus any withholdings when you complete your tax return.
With your new filing status, you might qualify for credits and deductions are only available to taxpayers who fall into lower-income brackets. Consider that when you get unemployment, your income is customarily lower than the income you received while employed. This means that you could be eligible for the Earned Income Tax Credit, a higher child care credit, or even an Additional Child Tax credit. Take charge in your current situation by learning what you need to do to best manage your taxes while you look for a new job.
File Your Return
This sounds obvious, however, when you are unemployed over a long period, it may be easier to forget. Individual filers who are under age 65 will need to file if their income exceeds $12,200. For joint filers under age 65, the amount is $24,400.
File Your Taxes as Early as Possible
Never delay filing your return. You might have a refund. Those who have lost jobs usually move into lower tax brackets. The withholding from the previous job, in that case, was most likely too high. This could result in a sizable tax refund.
Take Advantage of Local, State, and Federally-Funded Benefits
Some of these benefits are tax-free. Each year governments at the state, federal, and local levels disperse $1.8 trillion in benefits. Government benefit programs for food and health care can greatly reduce your day-to-day expenses.
- Money-Saving Benefits
- Health Insurance
- Food Assistance
- Free or Low-cost phone service
- Low-cost auto insurance
- Unclaimed funds
Job Search Deductions Are No Longer Available
One of the best benefits formally available to qualified unemployment taxpayers is the ability to deduct the expenses of their job search. This makes it more critical than ever to learn about self-employment taxes. For example, if you are doing side jobs such as working with a rideshare company, you would report any expenses on Schedule C (Profit or Loss from Business). You may have only picked up a few side jobs but you must still include Form SE (Self-Employment Tax) with your 1040 and pay your Medicare and Social Security taxes on the self-employed income. IRS Publication 334 is a Tax Guide for Small Businesses. It provides tips on record keeping, estimating your tax payments, as well as deductible business expenses.
Health Coverage Tax Credit
The HCTC is available in specific situations. For example, through 2019 this tax credit is available to select unemployed individuals. If your job was lost as a result of foreign trade and you receive Trade Adjustment Assistance benefits, this credit may be available to yours. It covers 72.5% of health insurance premiums.
Pay Unemployment Compensation Taxes
Be sure that you report all of the unemployment funds that you receive. Your state should mail you a copy of Form 1099-G detailing the amount of unemployment compensation you received the previous year. Report the full amount on your tax return.
Penalties exist for late payments, negligence, evasion, and fraud. If you or the IRS finds an error on your tax return, you can be subject to penalties. These penalties might be monetary, civil, or criminal depending on the severity. If an error is in your favor, no penalty will be accessed, and you may amend your return to claim any overpayment. Being faced with IRS penalties is never welcome. This is especially true at a time when so many people are facing hardships due to unemployment.