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Susan Tompor: What to do now to avoid a nasty tax surprise next year

Susan Tompor, Detroit Free Press on

Published in Home and Consumer News

Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, said President Joe Biden has not proposed an exclusion of some jobless benefits from taxable income as was done retroactively for 2020.

But Luscombe noted it remains possible that Congress could enact another retroactive exclusion later this year.

No one knows, of course, whether the current tax rule will stay in place or if we'll see another waiver.

If all those benefits remain taxable, though, you could be looking at a tax headache if you don't make some adjustments.

Someone who is applying for unemployment compensation now could request that taxes be withheld from their benefits.

If you had taxes withheld on jobless benefits, the federal taxes are withheld at a 10% rate. On $10,000 in jobless benefits, for example, we're talking about $1,000 in federal taxes withheld. That's money that could go to cover what income taxes you'd owe — or possibly lead to a bigger federal income tax refund next year.

 

If you're already collecting unemployment benefits — and did not withhold federal taxes — you can contact the state agency and see if taxes can be withheld from future benefits.

In Michigan, those receiving unemployment compensation are able to update their tax withholdings through their MiWAM account. They will need to go to Claimant Services, click on their active claim, then select Update Withholding, according to Lynda Robinson, a spokesperson for Michigan's Unemployment Insurance Agency.

Do you have children ages 17 and younger?

Many people with children will be thrilled to spot extra cash in their bank accounts or to see a check in the mailbox beginning around July 15 as the Internal Revenue Service issues advance payments for the expanded Child Tax Credit.

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