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Unemployment payments $600: are they exempt from tax?

In the United States, tax returns and payments must be completed by 23:59 hours tonight. Tax returns must include information about state benefits.

Unemployment payments $600: are they exempt from tax?

The deadline to file tax returns or pay taxed owed to the IRS ends at 23:59 hours tonight. With many IRS offices currently closed, most returns have been filed online. Due to the Coronavirus pandemic, the original deadline for 2019 income tax filing and payment was extended from 15 April until today. Penalties and interest on any outstanding, unpaid tax will begin to accrue on any remaining unpaid balances starting from tomorrow, 16 July 2020. It is now physically too late to file a paper return but it is still possible to file Form 1040 digitally through the IRS Free File app here:

By the start of the month, the IRS had already received almost as many tax returns than at the same point last year. According to official figures, 142 million taxpayers filed their returns, about 3% fewer than 2019.

Unemployment benefits and federal tax

Some of those who have filed their tax returns for 2019 might have received unemployment compensation – the details of those unemployment payments must be included as gross income when filing income tax return Form 1040.

The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. Unemployment compensation includes amounts received under the laws of the United States or of a state, including:

  • State unemployment insurance benefits
  • Benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund
  • Railroad unemployment compensation benefits
  • Disability benefits paid as a substitute for unemployment compensation
  • Trade readjustment allowances under the Trade Act of 1974
  • Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974, and
  • Unemployment assistance under the Airline Deregulation Act of 1978 Program

This includes the weekly $600 unemployment insurance (UI) payment that several million Americans will have received during the coronavirus crisis as part of the Federal Pandemic Unemployment Compensation program (CARES Act). Incidentally, those extra $600 unemployment insurance payments will be coming to an end at the end of this month (31 July).

The $600 unemployment insurance payments are deemed taxable income and so must be declared on next year’s tax return (for 2020). If you have received UI payments for the entire 14 weeks that will be equivalent to $8400 in taxable income – on top of any other state unemployment benefits you might have received. Note that the $1200 stimulus check impact payments are a separate issue and are considered exempt from tax.

How to file social security benefits on your tax form

The net amount of social security benefits that you receive from the Social Security Administration is reported in Box 5 of Form SSA-1099, Social Security Benefit Statement, and you report that amount on line 5a of Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors (PDF). The taxable portion of the benefits that's included in your income and used to calculate your income tax liability depends on the total amount of your income and benefits for the taxable year. You report the taxable portion of your social security benefits on line 5b of Form 1040 or Form 1040-SR.

NB. Individual taxpayers who need additional time to file beyond the 15 July deadline can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.

See also:

Second stimulus check $40,000 limit: calculate how much you can get

IRS tax payment: tips on how to pay online before 16 July

Paycheck Protection Program (PPP): will I be taxed on my loan?