Despite the decision by the Treasury Department and the Internal Revenue Service (IRS) to push the tax filing and payment deadline to July 15, it’s likely that millions of Americans will be unable to pay their tax liability for 2019 on time.
While Tax Day traditionally falls on April 15, the rapid escalation of novel coronavirus cases in the United States this March lead to postponement of the filing deadline until summer for the first time in 60 years. Said delay was made with the intention of providing short-term relief to businesses and individuals, temporarily freeing up cash that would have, under normal circumstances, already been paid to the IRS.
However, as the number of individuals filing for unemployment nears 40 million, per the latest Department of Labor numbers, many Americans will inevitably end up saddled with additional tax liability owed on such benefits.
Such taxes owed on unemployment, paired with any unpaid back taxes for 2019, can make for untenable individual tax liability, leading some groups to recommend an additional deadline delay.
“Depression-level unemployment, more than 1.3 million cases of coronavirus, and 82,000 deaths are clear signs that Americans are carrying a stressful load right now,” said Tony Reardon, president of the National Treasury Employees Union in a press release.
“The least we can do is give them a few more months to do their taxes,” Reardon added, pushing for a new October 15 filing deadline. And Reardon’s not the only one — President Trump himself signaled a willingness to delay Tax Day until much later this year, though a specific date has yet to be set.
Regardless of when Americans are required to make their tax payments, those currently receiving unemployment benefits need to strategize now to prevent a harsh tax bill in coming months.
How to Handle Taxes During Coronavirus
You will eventually be required to pay federal taxes on your unemployment benefits, and depending on where you live, possible state and local taxes as well.
Keep in mind you will also be taxed on the additional $600 a week unemployment benefit guaranteed by the Coronavirus Aid Relief and Economic Security (CARES) Act.
Thankfully your $1,200 IRS stimulus will not be subject to taxes — but if there are no pressing expenses or debts in your life, you may want to consider using that payment to reduce your tax liability.
Once you’ve started collecting unemployment benefits, you have the option of paying taxes quarterly, annually, or having them withheld from your check. For the forthcoming July 15 deadline, it’s required you’ve filed and paid your taxes for 2019, in addition to your taxes owed for the first two quarters of 2020 by that date.
As such, it might work best if you have taxes withheld from your unemployment payments, or ensure you’re paying taxes on a quarterly basis, to avoid being hit with a huge tax bill later on.
“Most states give you the option to withhold taxes from your unemployment payments,” says certified public accountant Adnan Akhand, partner at business advisory firm BX3. “Choosing to withhold is the easiest way to avoid a bad surprise come tax time.”
Moreover, if you have remaining tax liability from 2019, and are worried about your ability to pay come July 15, it may help to take proactive measures toward paying it off ahead of time.
“I would advise anyone who owes taxes to contact the tax authority they owe, whether at the Federal or state level, and explain their financial situation,” adds Akhand. “Tax departments are not always viewed in the best light, but they are often willing to offer payment plans or renegotiation existing amounts — and you may even be able to settle for less.”
As a final precaution, it may help to keep an eye on the news as the executive branch mulls extending the tax deadline further. To that end, follow CentSai’s COVID-19 page for the latest updates on the novel coronavirus pandemic.
