Being unemployed and furloughed stinks in several ways. With the COVID-19 pandemic, the situation is more serious. Also, to top it all, you have to file your tax. Don’t you feel it’s the worst?
When your income drops down all of a sudden and drastically, the tax status may also change. However, with the tax tips by your side you can control this gloominess. This doesn’t mean you can skip tax filing, but these tips can help you with filing taxes when unemployed and how to go about it.
Some Useful Tax Tips For Furloughed And Unemployed
1. File The Tax Return
It can be really easy to forget if you have been unemployed for some months. Still, you should file unless you meet the stringent guidelines.
If your annual income exceeds $12,200 for a single filer under 65 years, you need to file your income tax. If you don’t, the IRS charges penalties. Also, you may have to owe interest, too, if you don’t have enough withholding.
2. File As Early As Possible
You might have a refund coming. If you are unemployed or furloughed, little bit helps. Even when you have started out last year not expecting an income, losing the job may have moved you into a low tax bracket.
This means the withholding from your previous employer was really high. You may have a bigger refund coming than you really think. Now you know how to file taxes when unemployed.
3. Make Use Of Government Benefit Programs
You may not have been eligible before, but now you may be able to quality for many benefits, including unemployment insurance relief. Some others include
- Health insurance
- Food assistance
- Low cost auto insurance
- Low cost electricity, phone and gas
- Unclaimed funds
Now is not the time to be proud of. Take help wherever you think you need it.
Go For Some Tax Breaks
Depending on the income you have earned, you might qualify for some tax breaks for unemployed, surely.
The earned income tax credit (EITC) from the federal government for people with low or moderate income. Unemployment benefits don’t count as earned income. So, if you have earned income, you cannot claim this.
The Child Tax Credit for qualifying children aged under 17. You can get $2000 per child and if the amount goes over your tax obligation of the year, you may be eligible for Additional Child Tax Credit at $1400 per child.
The Retirement Savings Credit allows credit along with some tax deductible IRA contribution. Eligible contributions to the IRA or employer-sponsored retirement plan may provide a credit of 10% to 50% of contributions based on your income level. The maximum is $2000 for single filers and $4000 for joint filers.
4. Job Termination Income Is Also Taxable
If you have received severance package, you should know the income is taxable. That’s not all, so is your income from unused vacation and sick leaves. It is one of the important tax tips for unemployed.
The amount would show on your W-2, so the IRS already knows about it.
5. Pay Taxes On Unemployed Income
Yes, unemployed income is taxable too. You need to report the full amount you have received and look for Form 1099-G showing you how much.
6. Self Employment Taxes
If you lost your job and turned to self-employment, the tax rules may differ. There isn’t a lot, however, it is important.
- Report business expenses
- Even if you do odd jobs, fill form SE and attach to the 1040
- Pay Social Security and Medicare taxes on income
7. Make Arrangements If You Can’t Pay On Time
If you find out that you owe the IRS, but you cannot make the entire payment by filling date, set up a proper payment plan.
The IRS has several options. Please note that you will pay interests and also penalties some time or the other.
Don’t file late since it incurs another set of penalties.
Now, these tips are not unusual and have always been true. However, it is not a usual time and more people are searching for drastic income changes than before.
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