Unemployment benefits count as taxable income, explains Madhu Ahuja, a Plano-based CPA with Ahuja & Clark.
Check your records to confirm if you had federal income taxes withheld from your unemployment benefit payments. As the Texas Workforce Commission explains, it withholds 10% of the gross amount of each payment.
“If income taxes have not been withheld at the time of payment of the benefits, then you must run an estimate before year-end to calculate the tax payment,” Ahuja explained.
The IRS offers this free tool online.
That way, you avoid a surprise bill later.
What about Stimulus Payments?
Earlier this year, the CARES Act included Economic Impact Payments to some households. That money is not counted as taxable income and won’t reduce your refund. Instead, it’s treated like a refundable tax credit as part of your refund in 2021.