It's been a tough year for millions. In addition to worrying about keeping themselves and their families safe during the coronavirus pandemic, millions have lost their jobs.
But there may be a little bit of help for those relying on government payments as 2020 winds down.
The House and Senate are working on a compromise COVID-19 relief bill. It's huge and there still are congressional hurdles to overcome, but right now the proposal calls for a federal unemployment benefit of $300 a week for 16 weeks.
That's welcome news for the nearly 13 million Americans who, without Congressional help, are set to lose their unemployment benefits on Dec. 26. If the bill makes it into law, they would get the added federal money through April 19, 2021.
The proposal has two other notable unemployment segments.
It also would extend for the same time frame for two Coronavirus Aid, Relief and Economic Security (CARES) Act relief programs set to expire at the end of the year. The Pandemic Unemployment Assistance for gig workers, as well as the Pandemic Emergency Unemployment Compensation program that provides benefits to people whose state benefits have run out, also would extend through next April 19.
The plan is to attach this coronavirus relief bill — it's one of two being hashed out — to the federal funding bill that must be approved by Friday, Dec. 18.
Taxes due on unemployment: While the money is sorely needed by the millions who've lost jobs due to COVID-19's economic impact, they will have to pay tax on the benefits.
Unemployment compensation is taxable income.
Recipients have the option to have taxes withheld from the payments, but most don't. That's understandable. In the here-and-now when the money is needed, people who are getting the benefits need every available penny to help cover their living expenses.
Some folks do make the tax payments by filing estimated taxes. The Internal Revenue Service expects these quarterly payments on all taxable amounts that don't have any income tax withholding taken out when they are issued.
But as with the regular withholding from each benefit check, a lot of people overlook estimated filings related to unemployment.
That means they will owe taxes on the benefits when they report them net year on their annual Form 1040 filings.
That reporting is a must, since unemployment recipients will get a Form 1099-G with the government payments' details. And like other informational forms, the IRS will get a copy.
That's why 1099-G is this week's Tax Form Tuesday document.
For most folks, tax software or a tax pro will take care of entering the info on Form 1040. But it never hurst to know what's on the form you use in conjunction with your computer filing if you do your own taxes or how your tax preparer will of use the Form 1099-G.
Let's start with a look at front of the form.
It has specifics about the payer, which for unemployment benefits is the government entity that made the payment.
Then there's information about you, the unemployment benefits recipient and taxpayer. Double check that your name, address and tax identification number (usually your Social Security number) are correct.
When it comes to that Social Security number — or, in other taxpayer situations, an individual taxpayer identification number (ITIN) — you might see that only the last four digits of your number is showing. That's truncation is part of an ongoing IRS effort to protect taxpayers' identities from identity thieves.
Rest assured, however, that the 1099-G issuer has reported your complete taxpayer identity number to the IRS.
1099-G boxes: The right side of 1099-G has 11 boxes. Details on the info in each and how it should be used to file your annual tax return is detailed on the back of the form. Below is look at what the reverse of the 1099-G says about those entries.
Box 1. Here is where you'll find the total unemployment compensation paid to you this year. If you get more than on 1099-G, you can combine the box 1 amounts from all the form and report that amount on the unemployment compensation line of Form 1040 Schedule 1.
If you are married filing jointly, each spouse must figure his or her taxable amount separately.
If you made contributions to a governmental unemployment compensation program or to a governmental paid family leave program and received a payment from that program, the payer must issue a separate Form 1099-G to report this amount to you. If you itemize deductions, you may deduct your contributions on Schedule A as taxes paid.
If, however, you're like most taxpayers and instead claim the standard deduction, you only need to include in income the amount that is in excess of your contributions.
Box 2. This box shows refunds, credits or offsets of state or local income tax you received. That amount may be taxable to you if you itemized and claimed your state or local income tax as a Schedule A deduction.
Even if you did not receive the amount shown, for example, because (a) it was credited to your state or local estimated tax, (b) it was offset against federal or state debts, (c) it was offset against other offsets or (d) you made a charitable contribution from your refund, it is still taxable income if you deducted it.
And if you received interest on this amount, you also may get a Form 1099-INT detailing that interest amount. Those earnings also are taxable income that needs to be reported elsewhere on your tax return. The 1099-G (or your tax pro or tax software) has specifics on this.
OK, I know some of y'all are freaking out right now. You've regularly received a state tax refund and never paid tax on it. Chances are that's not a problem.
As long as you took the standard deduction on your federal return, the IRS doesn't care about your state tax refund. If you didn't use those state and local taxes as an itemized deduction to reduce your federal tax bill, then you don't have to worry about reporting the amount in box 2. For these standard deduction filers, your state tax refund isn't taxable.
Box 3. This just tells you which tax year for which the box 2 refunds, credits, or offsets shown were made. If there is no entry in this box, the refund is for the prior tax year. In this case, the 2020 Form 1099-G is for use in filing your 2019 taxes.
Box 4. If you requested that the payer withhold taxes or backup withholding was required on the payment — this kicks in when you don't give the payer your taxpayer identity number — that amount of tax is show in box 4. The amount in this box should be added to the amount of income tax withheld that your report on your Form 1040.
The next five boxes on 1099-G cover specific instances and don't apply to most taxpayers. But just in case, keep reading.
Box 5. The amount in this box is any reemployment trade adjustment assistance (RTAA) payments you received. It goes on the "Other income" line of your Form 1040 Schedule 1.
Box 6. Shows taxable grants you received from a federal, state, or local government.
Box 7. Shows your taxable Department of Agriculture payments. IRS Publication 225 and the Form 1040 Schedule F instructions (or your tax software or tax pro) have information about where individual filers should report this income. If it is in connection with a partnership, Form 8825 has more on how to report this amount.
Box 8. If this box is checked, the amount in box 2 is attributable to an income tax that applies exclusively to income from a trade or business and is not a tax of general application. If taxable, report the amount in box 2 on Form 1040's Schedule C or Schedule F, as appropriate.
Box 9. This is where any market gain on Commodity Credit Corporation (CCC) loans, whether repaid using cash or CCC certificates, is reported. More on these amounts can be found in the Form 1040 Schedule F instructions.
OK, almost done. And thankfully, back to more mundane information.
Boxes 10a, 10b and 11. We're back to basics with these final three entries on Form 1099-G boxes. This is where any withheld state income tax and information on the state is reported. It is, obviously, important when you file your state tax return.
Not just unemployment: As you can see from the discussion of the 1099-G specific box amounts, as well as its official name/descriptor as "Certain Government Payments," this form is not just for reporting unemployment.
But most of us get Form 1099-G when we get a state tax refund or, especially in this difficult 2020 tax year, we receive unemployment benefits.
In these cases, be on the lookout early next year for your 1099-G. It should arrive in your snail mail box by the end of January or early February. You'll need it correctly complete your tax return.
If you don't use it, you'll hear back from the IRS who will use its copy to compare to your return. That will likely lead to you owing more tax and associated penalties and interest.
And, of course, you'll want to keep the form in your tax records, just in case the IRS or your state tax department has questions later.
You also might find these items of interest:
- 5 moves to make, including tax tips, if you're fired
- Tax help for those who lost healthcare along with their jobs
- 6 unemployment tax Q&A for COVID-tinged Labor Day 2020