2020 is a year.
You, along with millions of other US citizens, may have suddenly found yourself out of work and on unemployment. You may or may not have opted to have taxes taken out of your unemployment, but if you didn’t, what does this mean?
Unemployment is taxable!
You must report all unemployment when you file your taxes. All of the unemployment add-ons ( the CARES Act $600 unemployment bump, PUA, PPP, etc) are also taxable and must be claimed.
Withholding taxes from unemployment is voluntary and it’s sometimes very easy to overlook the area you need to fill out to do it (for some states, it’s just a box you need to check). Also, the taxes UI withholds is a flat 10%, so you are likely going to still owe more come tax time.
What If I Didn’t Withhold Taxes?
If you didn’t opt to have any taxes taken out, or you missed where to do it when you filed, you can attempt to contact unemployment to have them fix it, or cancel and refile your claim – but with the mess that is unemployment in many states, this isn’t recommended.
Your best course of action is to take out that same percent yourself (or preferably more) and put it into a savings account specifically for paying taxes. You can also make estimated tax payments instead. There are quarterly deadlines each year (2020’s have already passed), but you can start making payments now at https://www.irs.gov/payments.
For more information, including some helpful worksheets and a Tax Estimator, see Form 1040-ES and Publication 505, available on IRS.gov. You can also contact your CPA and discuss your best course of action with them. Remember: