This year has thus far been a year marked with unprecedented job losses and unemployment claims. Many who never imagined having to file for unemployment have been forced to do just that as businesses shut down – either temporarily or permanently – and the job market gets squeezed to nearly nothing.
For those wondering how to pay their rent or mortgage payment, unemployment income is a blessing; it’s often all that stands between them and financial ruin. For others – especially those who work at low-paying jobs, like restaurant waiters and bartenders – it’s more like a panacea. Many of these workers are making more now on unemployment than they were when they were working full time. Free money with no effort. Pretty exciting, right?
Unemployment Benefits are Considered Income
Not so fast! When an income stream is interrupted, whether through a pandemic, regular layoffs, or reductions in force, it’s helpful to have at least a percentage of your income available so that you can still put food on the table and keep up with payments on your residence, cars, and other bills. This is the purpose of unemployment income. But it’s important to emphasize the word income here and keep in mind that most unemployment income is taxable, just as regular income is.
It’s also good to know that taxes are not withheld from unemployment checks. This means that you’ll be responsible for setting aside enough money to pay taxes on this income next year at tax time. For some, this may be a stretch. Or a nasty surprise.
Unemployment Benefits are Temporary
Unemployment benefits are also temporary. They were created to help bridge the gap from one job to another for those who become suddenly unemployed through no fault of their own. The original intent was to help employees make ends meet until they found another job. In today’s economy, with few other jobs on the horizon, unemployment benefits are helping tide workers over until the company they work for recovers from the COVID-19 pandemic.
Unemployment benefits were always intended as short-term compensation, even if the term is extended or the pool of eligible candidates has expanded due to extenuating circumstances.
Get Help with Your Unemployment Questions
Adams Accounting Solutions specializes in helping individuals and small businesses figure out their tax liability and plan for it. If you’re currently receiving unemployment compensation, we can help you estimate what you need to set aside so that you’re not short next year at tax time. There are several ways to do this, and we’ll help you choose the one that’s best for you. Give us a call at 913-888-9100 with your questions about unemployment compensation and taxes. We’re here to help!
