Home & Leisure

Susan Tompor: Lost a job? How to pay taxes on unemployment benefits

Susan Tompor, Detroit Free Press on

Published in Home and Consumer News

Lose a job in 2020? Get ready, you could be hit with a tax bill in 2021.

Millions of people lost jobs and claimed unemployment compensation across the country last year as restaurants, retailers, theaters and other businesses faced massive cut backs hit during the coronavirus-induced recession.

And jobless benefits proved to be fairly generous, as the CARES Act offered an extra $600 a week in unemployment benefits beginning in April through July. As a result, some people nationwide may have received $1,000 or so a week in jobless benefits for four months.

And yes, that $600 a week plus regular state unemployment benefits will be considered taxable income when you file your 2020 federal income tax return.

"Unemployment benefits currently are fully included in taxable income," said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

But unlike wages, he said, unemployment benefits are not subject to payroll taxes, such as Social Security and Medicare taxes.


Jobless claims hit historic levels during the pandemic

More than one in five workers nationwide were out of work and seeking jobless benefits in the summer. Roughly 33.1 million workers were either on unemployment benefits, had been approved and were waiting for benefits, or had applied and were waiting to get approved, as of June 30, according to the U.S. Department of Labor.

The tax season shocker for many jobless people will be that their tax refund could be far smaller than expected or they might even owe taxes.

"Taxpayers may not be aware that unemployment is taxed," said Lisa Greene-Lewis, a certified public accountant and tax expert for TurboTax.


swipe to next page
©2021 Detroit Free Press. Distributed by Tribune Content Agency, LLC.