JERSEY CITY, N.J., Sept. 1, 2020 /PRNewswire/ -- Jackson Hewitt Tax Service® released a new video today that discusses how unemployment benefits impact income taxes and how taxpayers could adjust their withholdings. In the video, Mark Steber, Jackson Hewitt's Chief Tax Information Officer, takes taxpayers through the most important things taxpayers should know about how unemployment could change their tax returns.
"According to the Department of Labor, more than 30 million Americans claimed unemployment benefits in June 2020. With the COVID-19 outbreak impacting the economy, that number, unfortunately, might keep growing," Steber says during the YouTube video. "And, according to a recent Jackson Hewitt survey, 37% of Americans believe that unemployment benefits are not taxable. Unfortunately, that is not the case. Unemployment benefits are subject to federal and state taxes like any other source of income."
During the video, Steber explains that unemployment benefit claims will impact the recipient's 2020 tax return. Both state unemployment benefits and the additional $600 a week coronavirus relief provided by the federal government under the CARES Act, are considered taxable income. That means that if taxpayers did not withhold any taxes from their unemployment benefits, they could be hit with a big tax bill or much smaller tax refund than they are used to.
There are three main things that taxpayers need to know about unemployment benefits:
Unemployment benefits are taxable and should be included on an income tax return. If taxpayers leave this income off their tax return, they could receive an IRS assessment notice or their tax refund could be delayed. Additionally, penalties and interest will compound until the debt is paid.
Withholdings work differently with unemployment benefits than they do with other wages: there is no automatic tax withholding. This means that taxpayers must opt in or elect to have taxes withheld from their unemployment benefits. Taxpayers can only request withholdings at a 10% rate on unemployment benefits. A 10% withholding rate is often not enough, especially if taxpayers qualified for the extra $600 a week from the federal government.
Other tax credits and deductions can be impacted by unemployment benefits. Lower income does not necessarily mean fewer taxes. Unemployment is considered unearned income, so it does not count towards certain credits reducing the total amount of the credit that they taxpayer is eligible for. Many credits are based on specific rules that require earned income to qualify. For example, taxpayers must have earned income to qualify for the Child Tax Credit, Earned Income Tax Credit, and Credit for Qualified Dependent Care Expenses.
Schedule an appointment with a Jackson Hewitt Tax Pro when it's time to file taxes. To find the nearest office location, visit jacksonhewitt.com/officelocator.
About Jackson Hewitt Tax Service Inc. Jackson Hewitt Tax Service Inc. is an innovator in the tax industry, with a mission to provide its hard-working clients access to simple, low-cost solutions to manage their taxes and tax refunds. Jackson Hewitt is devoted to helping clients get ahead and stands behind its work with its Maximum Refund and Lifetime Accuracy guarantees. Clients can choose to file at one of Jackson Hewitt's nearly 6,000 franchised and company-owned locations, including 3,000 in Walmart stores and online, making it easy and convenient for clients to file their taxes. For more information about products, services, and offers, or to locate a Jackson Hewitt office, visit www.jacksonhewitt.com or call 1 (800) 234-1040.