By December of 2021, there were 6.3 million unemployed people according to the United States Department of Labor. As unemployment rates continue to rise and fall, unemployment benefits do as well.
If you are currently out of a jobearn and wish to receive unemployment compensation, this is the guide for you. Here you’ll learn how unemployment compensation works and what the benefits mean for your taxes.
Keep reading to learn about a tax return for the unemployed.
Unemployment compensation is monetary assistance that can affect your taxes. The federal and state governments provide this form of compensation to those who are out of work.
Taxpayers can apply for these benefits through state programs. The amount of compensation received will depend on the following factors:
- The maximum benefit their state allows
- Their earnings
- The amount of time worked
Business owners that have employees have to file a 940 form with the IRS to report their Federal Unemployment Tax Act (FUTA). This differs from the 941 form employers fill out. Learn about a form 940 vs 941 now.
Tax Impact on Unemployment Benefits
Unemployment benefits are included with salaries, bank interest, and wages. These make up the amount of income you receive and will determine if you must file a tax return.
A tax return for the unemployed includes the filing of IRS Form 1099-G. State unemployment divisions will issue this form to those who receive unemployment benefits in a given year.
The form will come with the total amount of your compensation listed in Box 1.
By receiving benefits, you have the choice to have income taxes withheld from compensation to avoid owing large amounts of taxes when Tax Day comes. If you choose to have taxes withheld from your benefits, the following will be true:
- The total federal tax withheld is reported in Box 4
- The state tax withheld appears in Box 11
Keep your 1099-G with the rest of your tax records. You’ll report the unemployment compensation on Schedule 1 in the Additional Income section of your federal tax return. If you use a tax professional or software program to do your taxes, they can put your unemployment income information in the correct tax forms for you.
Tax Return for the Unemployed: Are You Ready to File?
Receiving unemployment benefits is a blessing when you are out of a job through no fault of your own. However, it can make tax season a bit more complicated.
You’ll likely have to file an additional form on your tax return for the unemployed. The 1099-G form will be sent to you by your state if this is the case. You’ll also need to file other IRS tax forms in your complete return.
Get ready for tax season with the help of this guide and don’t forget to come back for more blogs like this.