If you are one of the 30 million+ Americans who have lost their job due to the coronavirus pandemic and have collected unemployment benefits, be prepared to owe taxes. NYS unemployment benefits as well as the $600 per week federal supplement provided by the CARES Act are subject to federal and state income taxes but taxes are not automatically withheld.
Although the benefits received are not subject to Medicare or Social Security taxes, they will be taxed by the federal government and NYS for income tax purposes. If you did not opt to have the voluntary 10% federal or 2.5% NYS tax withheld, you may be in for an unexpected surprise when you file your tax return next spring.
If you received the maximum NYS benefit of $504/week for 26 weeks plus the additional $600/week for 17 weeks granted by the federal CARES Act, there will be $23,304 of taxable income to report on your 2020 tax return. If you are single and take the standard deduction, you can expect to owe close to $2,000 of tax. Of course, your filing status, other income and deductions may change that estimated tax number considerably but the bottom line is, there will be tax consequences for receiving those benefits.
So, if you have not had taxes withheld and are still receiving unemployment benefits or have gone back to work, consider changing your federal and state tax withholdings for the remainder of the year. Otherwise, you should put money aside and be prepared to owe the IRS and NYS or receive a smaller than expected refund.
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