SACRAMENTO, Calif. — As we get closer to the end 2020, we also get closer to paying our 2020 taxes. And if you collected unemployment benefits, now is a good time to start thinking about what that means for your finances.
All unemployment benefits—including CARES Act extensions like PUA, PEUC, and FED-ED are taxable on your federal return.
That adds up, especially if you got those $600 dollar-a-week payments that the government handed out from March through July, or the six weeks of $300 Lost Wages Assistance payments that followed through early September.
The good news is that California doesn’t tax unemployment at the state level.
Nathan Rigney, a tax analyst with H&R Block, says that your best bet is to have federal taxes withheld as you go along. You can choose to have the Employment Development Department do that when you certify for benefits.
“Most people don’t elect to have that withholding. So, what happens is they go to file their taxes next year and they’re surprised to find that they have to come up with some money out-of-pocket to pay a tax bill that they don’t normally have.”
For those who haven’t had the EDD withhold taxes, Rigney says they should try to talk with a tax expert to estimate what they’ll owe. Then, prepare as best they can.
“You can either make a payment directly to the IRS, or you can set aside money in a savings account or just hold it aside so that you’re prepared to pay that tax bill next year.”
If you’ve got a money question, text it to the Dollars and Sense team at (916) 321-3310.