New Jersey Society of CPAs Reminds Taxpayers That Unemployment Compensation Received During the Pandemic is Taxable
ROSELAND, N.J. – The New Jersey Society of Certified Public Accountants (NJCPA) reminds taxpayers that any unemployment compensation received during the COVID-19 pandemic is taxable, whether it’s related to federal relief funds or is state unemployment compensation. In the Garden State, unemployment compensation is taxable at the federal level, but not at the state level. While some states do tax unemployment benefits as income, New Jersey does not.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law on March 27, provides an additional $600 weekly to unemployed Americans until July 31, 2020. With the additional $600, unemployment recipients receive, on average, a weekly benefit of about $1,000, which is higher than traditional unemployment checks.
Taxpayers do not normally think to withhold taxes on these unemployment checks and specifically the extra $600. But to avoid having a larger-than-usual tax liability on next year’s tax return, taxpayers should try to have at least 10 percent of their payments withheld or make periodic payments in advance of tax time next year. However, for some taxpayers it may not be enough to withhold tax at 10 percent on their unemployment income; since 10 percent is the lowest federal tax bracket and many taxpayers fall into higher tax brackets, there is a strong likelihood that they may owe additional tax on the income.
According to the IRS, those recipients who received federal unemployment compensation should receive Form 1099-G in the mail showing the total amount received. Any unemployment compensation received must be included in one’s federal income.
At the federal level, the IRS does have guidance on how to make quarterly estimated payments, accessible here. To request withholdings, the IRS has a Voluntary Withholding Request form (W-4V) that can be used. To figure out who how much to withhold, the IRS also has a tax withholding estimator, accessible here.
“COVID-19 was such a shock to everyone that taxpayers need to be really prepared as society and businesses begin to recover,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director of NJCPA. “It’s important to know what is taxable and not taxable, especially for those receiving unemployment. CPAs are readily available to assist with that determination.”
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The New Jersey Society of Certified Public Accountants, with more than 14,000 members, represents the interests of the accounting profession and advances the financial well-being of the people of New Jersey. The NJCPA plays a leadership role in supporting the profession by providing members with educational resources, access to shared knowledge and a continuing effort to create and expand professional opportunities. Visit njcpa.org.