With millions of Americans now receiving taxable unemployment compensation, the IRS reminds them to have tax withheld from their benefits now to help avoid owing taxes on 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 CARES Act. 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.
What you can do:
- Fill out Form W-4V, Voluntary Withholding Request, 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.
- You can choose to 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 Sept. 15, 2020 and Jan. 15, 2021, respectively.