Unemployment is a tremendous burden to carry. In addition to causing financial strain and indecision about your future, it also causes a few headaches regarding taxes.
Even if you did not work for half of the year or more, you still must file taxes. There are certain things you may need to report—and there are also tax credits or deductions that could be available.
Here is your guide to filing taxes if you were unemployed half of the year.
For thousands of Americans that went unemployed for part or all of last year, they likely received some type of financial assistance to help offset costs. Unemployment benefits are helpful for a number of reasons, including the following:
Some individuals who are unemployed receive benefits from multiple sources. The point is that if you received some type of assistance in the past year due to unemployment, you need to report those funds to the IRS—just as you report earned income from a job.
In general, unemployment income is taxable. The biggest exception is if you receive the benefits from a private fund that you voluntarily contribute to. In that case, the funds are only taxable if the benefits you receive exceed the original amount you contributed to the fund, such as a savings account.
For taxpayers who may have worked half of the year and were unemployed the other half, they must report their wages from the jobs they worked in combination with their unemployment benefits.
It is possible that you may owe more taxes in addition to unemployment benefits if wages from the job(s) worked didn’t have enough money withheld from each paycheck based on your selection on a W4.
You still need to file your taxes even if you were unemployed for the entire year. It will indicate to the IRS whether or not you received unemployment benefits, as well as if you wish to claim any tax credits or deductions.
The good news is you have multiple options for how you file your taxes and pay for tax liability.
Taxpayers may decide to have the taxes owed withheld from upcoming unemployment compensation, or unemployed individuals may decide to pay estimated quarterly taxes to avoid a bigger lump sum at the end of the year.
You should make yourself aware of whether or not paying estimated quarterly taxes makes the most sense for you. Unfortunately, the IRS does penalize taxpayers who underpay throughout the year if they wait until April for the lump sum, which many unemployed individuals cannot afford.
Tax credits and deductions are your best friend, employed or unemployed. The good news is that while you should file a tax return even if you are unemployed, you can still take advantage of some credits designed to reduce your tax liability.
A few of the most appropriate tax deductions and credits for those who are unemployed include the following:
So you file taxes and owe the IRS money, but you’re unemployed and don’t have the funds. Better to ignore the IRS, right?
Wrong. It is never a good idea to avoid the IRS—either by not filing taxes or ignoring tax debt. It eventually catches up to you and could lead to serious consequences like tax liens and seizures. Thankfully, the IRS does help people who are struggling to pay off debt. They offer payment plans and other solutions for those in financial need.
If you are concerned about how you will pay back tax debt, contact Levy & Associates today. We help unemployed individuals file taxes, take advantage of tax credits and deductions, and find solutions for paying off any debt.
Your first meeting with us has absolutely no obligation or cost. Please visit www.www.levytaxhelp.com for more information.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.