Article Highlights:

  • Pandemic Unemployment Assistance
  • Benefit Extensions
  • Self-employed Coverage
  • Taxability
  • Withholding – Estimated Payments

The CARES Act includes Pandemic Unemployment Assistance (PUA) provisions that extend and supplement state-provided unemployment insurance and are intended to lessen the financial burdens on individuals who have lost their jobs because of the COVID-19 emergency by allowing states to extend unemployment benefits up to 13 weeks and waiving the normal one-week waiting period. The provisions also extend the benefits to individuals who are self-employed, seeking part-time employment, or otherwise ineligible for regular unemployment compensation.

To qualify for PUA benefits, you must not be eligible for regular (unrelated to the COVID-19 crisis) unemployment benefits and should be unemployed, partially unemployed, or unable or unavailable to work because of certain health or economic consequences of the COVID-19 pandemic.

The PUA program provides up to 39 weeks of benefits, which are available retroactively starting with weeks of unemployment beginning on or after January 27, 2020 and ending on or before December 31, 2020. The amount of benefits paid out will vary by state and are calculated based on the weekly benefit amounts (WBAs) provided under a state’s unemployment insurance laws. Under the CARES Act, the WBA may be supplemented by the additional $600 in unemployment assistance provided per week under the Cares Act.

The unemployment benefits are administered by the individual states, and benefits must be applied for through each individual state.

NOTE: At the time this article was prepared, many states were struggling to implement the provisions of the PUA program, making it difficult for individuals to quickly access these benefits.

It is also important to understand that unemployment benefits are taxable income for federal tax purposes and also taxable by most states. However, there are exceptions, and these states do not tax unemployment benefits.

Alabama

Alaska*

California

Florida*

Montana

Nevada*

New Hampshire**

New Jersey

Pennsylvania

South Dakota*

Tennessee**

Texas*

Virginia

Washington*

Wyoming*

* These states do not have a state income tax.

** These states do not have a state income tax but do tax interest and dividend income.

It may be appropriate for certain individuals to have federal taxes withheld from their unemployment compensation. This can be accomplished using Form W-4V. Wherever the unemployment is taxable by a state, the state’s estimated taxes can be paid.

Not prepaying taxes on unemployment benefits can lead to unpleasant surprises for some individuals when they file their 2020 tax returns. If you have questions related to how unemployment income will impact your 2020 taxes and whether you should have income tax withheld, please call this office.

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