I received unemployment with the extra $600 and I got both stimulus checks. I’m confused about what gets taxed and what doesn’t. My friend told me that the $600 and the stimulus checks aren’t going to be taxed. Is this true? And how do these payments affect my tax return?
I’m sorry you’ve been out of work and I fervently hope your job will be restored in short order. This is a great question and one that causes a lot of confusion for many people.
Unfortunately, your friend is only partially correct but I’m happy to clarify.
Unemployment payments are considered taxable income so yes, this money is taxed. When you filed for unemployment you were likely given the option to have taxes withheld at your ordinary income tax rate. If you live in a state that does not have income tax, then the option would’ve been just for your federal taxes. You’ll receive a 1099-G with the amount of unemployment earnings received and the amount of tax withheld, if any. This gets included in your 2020 tax return.
Unemployment earnings aren’t subject to Social Security and Medicare taxes, only federal and state income tax.
$600/$300 Supplemental Payments
One of the benefits provided by the CARES Act was an additional $600 per week for those receiving unemployment benefits through July 31, 2020. Per the CARES Act, anyone receiving $1 or more of unemployment is eligible for the $600 supplemental pay. Like your unemployment earnings, the $600 supplement was taxable and subject to the same withholding that you chose for your other unemployment income. This money will be reported on the same 1099-G as your unemployment. Same goes for the additional $300 a week that has been in effect since late December. New legislation could bump this benefit to $400 a week, but no matter how much you receive or in what year you receive it the funds are taxable and will be reported on that year’s taxes.
The short answer is no, these are not taxed. The longer is a bit more complicated. The stimulus check is actually an advance tax credit, often referred to as a rebate, that you receive now instead of when you complete your tax return next year. Since you received the money now, there’s no impact on your taxes when you complete your return.
If your earnings have been boosted by the stimulus money, it’s a good idea to check your tax withholdings when you return to work to avoid a big tax surprise at the end of the year. You can do this with the IRS Tax Withholding Calculator.
Thanks again for writing in, Unemployed. I sincerely hope next time we speak you will have gone from ‘Unemployed’ to ‘Employed!’
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