Tax Time: Why You May Need to Write a Check Instead of Collecting One

Many people filed for unemployment for the first time in 2020, and they may have not known two things while filing.

Unemployment benefits are taxed at the federal level but not the state level.

When you sign up for unemployment, you get to decide whether or not to have that federal tax taken out of your payments.

CPA Roz Sutch told NBC10 Responds it’s a 10% flat-rate withholding.  

If you didn’t have the money withheld when you signed up for the unemployment benefits, you’ll need to start planning now to pay those taxes come the spring. “A lot of people did elect not to have withholding just because they had cash flow issues and they needed every dollar of their benefit,” said Sutch.

You may need to start budgeting now.

Sutch suggests getting your taxes done as early as possible so you know how much you’ll need to pay.

Then, plan to send the check in April.

You’ll need a form 1099G from your state to report your benefit earnings. Again—this is for federal income tax.

Pennsylvania and New Jersey do not tax unemployment compensation and Delaware has waived the tax this year.

If you need help, the IRS has free software for those who are eligible based on their income.

Another resource that may be of help to you: the Campaign for Working Families. They offer free tax prep services—both virtual and drop-off in-person.