2020 has been a year full of changes and surprises for most people in and around Atlanta; with job lay-offs and furloughs due to COVID-19, you may be wondering what effect this will have on your tax return for this year. For those who were furloughed and returned to work in Stone Mountain later in the year, unemployment benefits will affect your total taxable income. Unlike the stimulus checks that went out earlier in the year, unemployment income is taxable.
What is the Difference?
Lay-offs and furloughs are very similar, especially given the current pandemic situation. The main difference is that a lay-off is intended to be permanent; furloughs, on the other hand, are processed with the intention of workers returning to employment when situations or job availability improves. As we’ve all seen, COVID seems to be taking a long time to make its way through and out of the US population. Unfortunately for our workers, this means that furloughs could last as long as COVID’s longevity for some sectors. Unemployment benefits are available for both those who were laid off and those who were furloughed.
Generally, paychecks from your company have taxes withheld from your income automatically. This ensures that, at the end of the year, you owe as little in taxes as possible; in some cases, you may even get a tax refund. Depending on the filing status you selected for the year, your estimated tax withholdings might not match up with what you actually owe according to your bracket. Individuals should always be prepared for the possibility that they may owe back taxes for any given year.
With the massive amounts of furloughs across the country (and the world), some people’s taxes are going to look very different this year. First and foremost, the majority of those who were furloughed claimed unemployment benefits to try and cope with our new reality; whether or not those unemployment checks were sufficient to cover basic needs, they are considered taxable income just like a paycheck from any other company. If you didn’t fill out a W-4 form before receiving benefits, your federal or state taxes may not have automatically been deducted.
The confusion may thicken if you were fortunate enough to be able to return to your Stone Mountain or Atlanta job after your furlough already. As with any employment change, it’s important to revisit your tax withholdings – depending on your tax strategy, of course. If you need help preparing your personal taxes (or any general personal financial help), NTRC Tax can help you navigate the multiple changes to your income that COVID has facilitated. Reach out to our tax professionals today so we can get started on your 2020 tax return.