In the face of economic uncertainty beset by job losses, furloughs and business closures around the country, millions of Americans are tapping various forms of funds to stay afloat amid the COVID-19 crisis.
While the relief is essential to the more than 33 million Americans who have filed for unemployment, according to the latest numbers from the Department of Labor, there are tax ramifications for much of the relief people are currently turning to during the pandemic.
Here are a few things you need to know about how coronavirus will affect your taxes.
This year’s tax deadline is extended to July 15
In March, the deadline to file 2019 taxes was extended from April 15 to July 15.
Treasury Secretary Steven Mnuchin made the announcement on a March 20 tweet, saying that under President Trump’s direction, the new Tax Day date would be moved to July 15.
The move was made to grant individuals and businesses more time to file and make payments without interest or penalties.
Unemployment benefits are taxable in most cases
According to the Internal Revenue Service (IRS), unemployment benefits are considered taxable income and must be reported.
This applies on the federal level as well as in most states, excepting those that don’t levy an income tax, according to CNBC.
Therefore, you can likely expect to pay taxes if you are collecting unemployment insurance payments from your state, and definitely expect to pay them on the $600 additional weekly amount paid under the CARES Act.
You don’t need to pay income taxes on your stimulus check
Americans will not need to set aside money from their stimulus checks to pay taxes in 2020.
According to tax experts like Eric Bronnenkant, head of tax at Betterment, people won’t have to pay taxes on relief checks because they are not considered income.
However, the stimulus checks are considered advances on credits for your 2020 taxes. According to Bronnenkant, this won’t negatively impact your refund next year if you surpass income thresholds, but it could positively impact it if you make less.
Taxes still apply if you need to make early 401(k) or IRA withdrawals
While provisions under the CARES Act makes early withdrawals less painful, waiving the 10% fee normally charged for withdrawing money from your IRA or 401(k) before the age of 59 ½, income taxes still apply to these withdrawals.
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