MEMPHIS, Tenn. — In the last week, more than 43,000 people in Tennessee claimed unemployment.
While many are using the benefits to take care of their basic needs during the coronavirus pandemic, tax preparers say it’s also important to look down the road.
“The government wants their money, and unfortunately taxes are a reality, and you’ve got to plan for them in these kind of times and normal times,” said Alan Crone of the Crone Law Firm.
Even in the midst of a pandemic and as many struggle financially, it’s important to remember unemployment benefits are considered unearned taxable income.
Between state and additional benefits offered through the CARES Act, people can now get $875 a week, but only a flat rate of 10% can be withheld from those benefits.
So depending on your taxable income, tax preparers say that may not be enough.
“I would recommend looking at your last years taxes to see what kind of tax bracket you were in and using that tax rate as a benchmark and then setting it aside,” said Phyllis Fickling with the United Way of the Mid-South
If your current financial situation won’t allow that, there are options.
“If you can’t do that for cash flow reasons, which I certainly would understand, then when you go back to work, you might want to have them withhold more money out of those checks to help cover the difference,” Fickling said.
Knowing that everyone’s situation will be different, many will have to just do the best you can for now.
“And it may be one of those things that you have to survive this, get through this and see what happens down the road,” Fickling said.
Tax preparers said it will be important to keep up with documents like a 1099-G form that tracks unemployment benefits and any taxes you had deducted.
