Have tax withheld now to avoid a tax-time surprise.

The Internal Revenue Service reminds people receiving unemployment compensation, many for the first time, that, by law, this compensation is taxable. They can have tax withheld from their benefits now to help avoid owing taxes on this income when they file their income tax return next year. Taxable benefits include any of the special unemployment compensation authorized under the CARES Act, enacted this spring.

IRS News Release IR-2020-185, Aug 19, 2020

Withholding is voluntary. The law allows any beneficiary to choose to have a flat 10% withheld from their benefits to cover part or all of their tax liability, using Form W-4V, Voluntary Withholding Request. NOTE: Do not send this form to the IRS. Give it to the agency paying the benefits.

If a beneficiary doesn’t choose withholding, or if withholding is not enough, they can make quarterly estimated tax payments instead. For more information on quarterly tax payments, including some helpful worksheets, CLICK HERE.

Beneficiaries who return to work before the end of the year can use the IRS Tax Withholding Estimator to make sure they are having enough tax taken out of their pay.

For more information visit IRS.gov or contact your tax professional.