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Rebound: Filing taxes after getting unemployment benefits

Posted at 4:00 PM, Dec 22, 2020
and last updated 2020-12-22 16:01:05-05

GRAND RAPIDS, Mich. — Millions of Michiganders are about to get their tax documents for 2020.

Hundreds of thousands will likely have questions about their refunds or payments, if they had to file for unemployment.

From not getting taxes taken out during the pandemic, to someone else claiming benefits using your information, there’s bound to be a lot of new concerns from Michiganders during tax time.

“Unemployment benefits are taxable at both the federal and the state of Michigan level,” said CPA Chris Harper, Education Director at Hungerford Nichols CPAs and Advisors and professor at Grand Valley State University.

“One bright note is that in the state of Michigan, unemployment benefits are not subject to city tax,” said Harper.

The state tax rate in Michigan is 4.25%. Federally, with seven tax brackets, he says it all depends on your individual circumstance. If you did not have taxes withheld so you had more money during the pandemic, be prepared to owe even if you’re used to getting a refund.

“A lot of people use that as a bit of a forced savings plan and if you have a situation where your taxable income increases because of unemployment benefits and you have not paid any of that tax into the system, that’s gonna reduce your refund, or it could even increase the amount that you owe,” said Harper.

That information should be arriving sometime next month.

You’ll get a 1099-G, summarizing your unemployment earnings and any tax witholdings.

To get that information electronically, you have to go into your MIWAM and request the delivery preference by January 2nd. It should be available to view or download by the middle of January.

If you do not do this on time, you’ll get a paper copy in the mail.

“Maybe your best bet is, I mean if you can avoid human contact by simply going into your MIWAM, making the request to get it electronically and then you also don’t have to worry about whatever timing with the postal service,” he said.

If you’re one of the thousands of people still waiting for your benefits, you may not get a 1099-G form this year, but should in 2021 after you receive the money.

“So, let’s say you applied in 2020 but you’re waiting for benefits and they ultimately get paid in 2021, well that payment should appear on your 1099-G for next year,” said Harper.

If you’re also one of the thousands who may be affected by fraud, your social security number is tied to payments and it may show up that you received benefits when you never did. You have to report fraud to the UIA and the IRS.

“The IRS will issue an identity theft PIN to taxpayers. In other words, you can’t file your return electronically unless you provide this PIN,’ he said.

That, he says, could get messy. If things don’t get worked out with the state on time you may need to file an extension for your federal taxes.

PUA and regular benefits work the same during tax time.

But if you own your own company, have rental property or other complicated issues associated with tax time, it may be best to hire a CPA or tax attorney.

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