Finance

Is My Stimulus Payment Taxable? And Other Tax Questions

is-my-stimulus-payment-taxable-and-other-tax-questions

Ms. Long generally recommends that people who receive unemployment benefit withhold at least 10 percent tax to avoid unwanted surprises.

You will also likely owe state income taxes on unemployment benefits, unless you live in one of the nine states that don’t have state income tax or some other states that are tax exempt from unemployment benefits, including California, Montana , New Jersey, Pennsylvania and Virginia. Wisconsin exempts unemployment benefits for citizens but tax breaks for nonresidents, according to the Tax Foundation.

Here are some questions and answers about the income tax season:

I don’t remember getting a receipt for my stimulus checks. How can I confirm the amount received?

If you haven’t received a notification or have misplaced it, check your bank statements to improve your memory. Or, says the IRS, you can find the amounts through an online taxpayer account. If you don’t already have one, you’ll need to create one at IRS.gov/account. This requires you to enter information, including an email address and your social security number. According to the IRS, this typically takes around 15 minutes.

Could my stimulus payments affect my state taxes?

Business stimulus payments are not taxable, but can indirectly affect state income tax payments in a handful of states where federal tax is deductible from taxable state income, according to the Tax Foundation. At least six states – Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon – allow deductions for federal income taxes paid.

Here is an example suggested by Garrett Watson, Senior Policy Analyst at the Foundation, of how a stimulus payment used as a refund credit could affect tax liability in these states: Let’s say a single applicant has one in 2020 $ 1,000 Stimulus Pay will receive her 2019 income, but will actually be eligible for the full payment of $ 1,200 based on her lower 2020 income.

The applicant would claim the $ 200 difference in credit for their 2020 tax return on line 30 of Form 1040. This would reduce her dollar-to-dollar tax liability by $ 200. So, for example, if the filer owed $ 3,000 in federal taxes prior to being credited, she would owe $ 2,800.

Without the credit, she would have deducted the full $ 3,000 from her taxable income on her government yield, but can only deduct $ 2,800 instead. That means a higher tax liability at the state level – but only for the $ 200 the applicant claims for her federal return, Watson said.

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Robert Dunfee