Unemployment tax payments

[jayyrayy]

If I was paid $45,000 in unemployment during the first quarter of 2021, approximately how much do I owe in federal and state (Hawaii) taxes? And, when and how do I pay?

Most of the funds were back payments from 2020, but no funds were received prior to 1/1/2021. Also, no taxes were withheld from these payments. I just need some guidance on making estimated tax payments (federal and Hawaii state) to avoid huge penalty fees. Any help will be greatly appreciated.

CC @Michele_H 

[AdamNe]

Hi @jayyrayy !

As of right now, barring any other legislative or IRS changes, the unemployment income will be included in your taxable income for federal and state for 2021. 

The amount of tax due on the unemployment itself will depend on how much other income you receive during 2021, which determines which tax bracket you will fall into.

For information on federal tax brackets click here.

Hawaii brackets can be found here.

You will also take into account any taxes you are having withheld automatically from the unemployment benefits. 

Another good resource to help you determine your total tax liability for next year is our TaxCaster:

TaxCaster

[OpeA1]

Typically, unemployment income is taxable and should be included with any other taxable income you have in the year. Some states also count unemployment benefits as taxable income. When it’s time to file your taxes, you will need Form 1099-G which will show the amount of unemployment income you received. It will also show any federal taxes you had taken out of your unemployment pay. 

In your case, no taxes were withheld. So it will be best to use the tax tables to figure out what you may owe on the unemployment income. Here is a link to the IRS tax tables with specific reference to unemployment income:  https://www.irs.gov/taxtopics/tc418 

Please see the following section on the above page/link:

1. How to Pay Taxes for Unemployment Compensation

2. Reporting Unemployment Compensation

With regards to the state of Hawaii, please use the following link with help on payment: https://hitax.hawaii.gov/_/ 

[jayyrayy]

Thanks so much for the info @AdamNe The question I'm having a hard time getting an answer to is... do I need to make estimated tax payments NOW to avoid penalties next year? 

[AdamNe]

@jayyrayy  good question! If you satisfy ONE of the following situations when you file your 2021 return, you will not owe a penalty for underpayment of estimated tax:

• Your filed (2021) tax return shows you owe less than $1,000 or
• You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.

See "Who Must Pay The Underpayment Penalty" here

Without seeing your tax returns and all the detailed information about your income and withholding, it is impossible for me to say for sure whether you owe estimated taxes. 

My suggestion is to first enter everything into the TaxCaster, which will tell you what your balance will be. If the TaxCaster shows a significant balance due, you may want to make estimated payments to get yourself into one of the categories above. 

[jayyrayy]

@AdamNe Since this is extremely important, is it possible for me to hire you or another tax expert so review my detailed information to help me prepare for my 2022 filing? Like I said I was paid $40k in unemployment and if I'm going to owe the IRS a large amount I need to start preparing now. 

[AdamNe]

@jayyrayy 

It may be a good idea to get expert help, and have a credentialed tax expert take a look at all of your information to determine the best way forward. While I can't offer my services directly, our experts are available through our Live Help services, as part of the TurboTax Live package. You can also reach a tax expert via the phone number (800) 446-8848. Keep in mind that there may be a cost associated with activating TurboTax Live services.