Chief Tax Information Officer
Published on: October 30, 2020
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By law, unemployment benefits are taxable and must be reported to the IRS on your tax return. However, according to a recent Jackson Hewitt survey, 39% of people do not know that unemployment benefits are taxable. Taxable benefits include any of the special unemployment compensation authorized by Congress under the Coronavirus Aid, Relief, and Economic Security (CARES) Act this spring. On the other hand, stimulus payments, formally known as the Economic Impact Payments (EIP) are not considered taxable income, although that amount will still need to be on your tax return.
Furthermore, according to the survey, 49% of single people and 56% of taxpayers under the age of 30 do not know unemployment benefits are taxable. This puts younger taxpayers at a severe disadvantage since they historically do not have expendable income or large savings to cover unexpected income taxes.
Anyone who received unemployment benefits must pay federal income tax on those benefits. However, state laws vary on whether unemployment recipients have to pay state income tax on the money they received. Some states require recipients to pay state income tax, while others say unemployment benefits are income tax exempt.
Taxpayers who received unemployment benefits and did not withhold any federal or state income tax should consider setting money aside now to cover those taxes for their 2020 tax return. According to Jackson Hewitt’s survey, this may be the case for many Americans this year since 61% of those who collected unemployment benefits have not withheld or set aside money for their 2020 income taxes. As a result, those living paycheck to paycheck should prepare to receive a much smaller tax refund or no refund at all this tax season.
Contact your local Jackson Hewitt Tax Pro today to help you start preparing for your 2020 tax return.
The Jackson Hewitt survey was conducted online by Dynata September 30 – October 1, 2020 among 1,000 American adults aged 18 and older. Respondents to the survey were selected from those who volunteered to participate in online surveys. One thousand complete surveys were collected using the sample framework based on U.S. Census data for age, ethnicity, gender, region, and income.
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.