With millions of Americans now receiving unemployment compensation, many for the first time, the IRS is reminding recipients that their benefits are taxable.
Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief and Economic Security Act enacted this spring.
The IRS recommends recipients withhold from their benefits now to help avoid owing taxes on the compensation when they file their federal income tax return next year. Federal law allows any recipient to choose to have a flat 10% withheld from their benefits to cover part or all of their tax liability.
If a recipient doesn't choose to withhold, or if withholding is not enough, they can make quarterly estimated tax payments instead. Learn more.