• Schoelles and Associates

IRS: Unemployment compensation is taxable; have tax withheld now and avoid a tax-time surprise


IR-2020-185, August 18, 2020


WASHINGTON — With millions of Americans now receiving taxable unemployment compensation, many of them for the first time, the Internal Revenue Service today reminded people receiving unemployment compensation that they can have tax withheld from their benefits now to help avoid owing taxes on this income when they file their federal income tax return next year.


By law, unemployment compensation is taxable and must be reported on a 2020 federal income tax return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.


Withholding is voluntary. Federal law allows any recipient to choose to have a flat 10% withheld from their benefits to cover part or all of their tax liability. To do that, fill out Form W-4V, Voluntary Withholding Request (PDF), and give it to the agency paying the benefits. Don't send it to the IRS. If the payor has its own withholding request form, use it instead.

If a recipient doesn't choose withholding, or if withholding is not enough, they can make quarterly estimated tax payments instead. The payment for the first two quarters of 2020 was due on July 15. Third and fourth quarter payments are due on September 15, 2020, and January 15, 2021, respectively. For more information, including some helpful worksheets, see Form 1040-ES and Publication 505, available on IRS.gov.


Here are some types of payments taxpayers should check their withholding on:


Continue reading here.

Recent Posts

See All

Families First Coronavirus Response Act

Courtesy of U.S. Department of Labor Families First Coronavirus Response Act: Employer Paid Leave Requirements The Families First Coronavirus Response Act (FFCRA or Act) requires certain employers to

Last minute year-end tax tips for businesses.

*Pay final bills and postmark by 12/31/2020 *Newly purchased business equipment must be placed in service by 12/31/2020 to be deductible *Business expenses paid by credit cards are deductible when cha