With the pandemic impacting the economy to the extent it has for much of the year, many practice owners found themselves collecting unemployment for the first time in their lives. Although unemployment insurance (UI) is a government program helping taxpayers out of work, expect to pay federal and state income taxes on any benefits received. Same goes for the Pandemic Unemployment Assistance (PUA) many received in addition to their state?s UI benefit.
To help plan for the taxes owed on this income, taxpayers can voluntarily choose to have 10% of their periodic UI received withheld for federal income taxes by providing a completed Form W-4V (https://www.irs.gov/pub/irs-pdf/fw4v.pdf) to the paying agency, instructing the agency to withhold taxes.
Please note that having 10% withheld for federal income taxes may not be enough in most cases. If you are in a higher tax bracket (12%, 22%, 24% or higher), you will most likely be under-withheld for federal taxes and might consider making quarterly estimated tax payments and/or having additional federal and state income taxes withheld from your pay once employed again. You can submit your estimated tax payments by check with a payment voucher via mail or electronically online via this IRS website:
https://www.irs.gov/payments