Many Americans received additional unemployment funds as a result of the coronavirus pandemic, including people who are self-employed.
These additional payments—known as Pandemic Unemployment Assistance—last through July 31, but one important detail that taxpayers need to remember is that they will have to pay both state and federal taxes on those funds—as well as on regular unemployment benefits, Lisa Green-Lewis, CPA and tax expert at TurboTax, tells TheStreet’s Tracy Byrnes in this special video series in partnership with TurboTax.
When people file their tax returns next year for 2020, they could be caught off guard if they don’t have money to pay for the tax on their unemployment benefits. All unemployment funds are taxable income, even the expanded relief for unemployment, says Greene-Lewis.
People who asked for their federal taxes to be withheld when they applied for unemployment probably won’t face the sticker shock next year. The name of the form is the W-4V. Taxpayers can still file that form and it will ask you how much you want taken out.
Not all states withhold taxes for unemployment funds, so it depends on where you live, she says. Another way to avoid a large tax bill in 2020 is to make that adjustment when you fill out a W-4 form when you start a new job, Greene-Lewis says.
The deadline for self-employed people paying estimated taxes was also extended to July 15.
Many people qualify for various tax credits for 2020 because they are making less money due to job losses from the pandemic.
The earned income tax credit is a huge credit for families -- if you have three kids, that's a credit of over $6,000, Greene-Lewis says. There's also the savers' credit that people receive for investing in their retirement: It’s a credit of up to $1,000 for single people and $2,000 for married people, filing jointly. Childcare and the dependent care credit is based on a sliding scale.
You can receive help from www.turbotax.com and also get help from a CPA or enrolled agent that has an average of 15 years of experience with TurboTax Live. For more tax tips on deductions and credits, income and investments, refunds and information for folks who are self-employed, check out the TurboTax blog.
And if you've been laid off, here's what Jim Cramer says to do with your investments.
Learn more about taxes from TurboTax: