Unemployment insurance is a benefit that most W-2 employees can qualify for if they’ve lost their job for reasons outside of their control. This includes partial or total unemployment, whether they were laid off entirely or had their hours reduced significantly.
Withholding vs Not Withholding
When signing up for unemployment insurance either online or by mail, there’s a small box near the bottom that allows you to choose if you’d like your unemployment income to be taxed now (withholding) or when you file your taxes in the spring (not withholding). As a result of not checking this box and not having taxes withheld, many are surprised to discover they owe more at tax season than they ever did when employed.
Why 2020 and 2021 Are Unique
While all of the above remains true year after year, the next tax season will pose a lot of firsts for many. Most employers and employees have never experienced mass layoffs and closures like we saw in 2020, and will not know what to fully expect when filing their taxes in 2021.
When The CARES Act was passed to help keep the economy afloat, those making less than thirty thousand annually before filing for unemployment ended up receiving a much higher income than they had when working. It’s crucial for those who received unemployment benefits in 2020 and did not choose to have their taxes withheld to understand they may owe a considerable amount of money when filing in 2021.
With all that has happened with the economy and unemployment in 2020, the path forward has never been more confusing. When you need professional assistance with your taxes, bookkeeping, payroll, accounting and more, visit us here for help you can rely on.