The federal government does require that taxpayers pay federal income tax on their unemployment benefits, but 2020 has some taxpayers wondering whether those benefits received due to COVID-19 will be taxed, too.
Here’s what you need to know about unemployment benefits in Illinois and how the state and federal government may tax you if you received benefits at some point in 2020 during the worldwide coronavirus pandemic.
Unemployment Compensation in the State of Illinois
According to the Illinois Department of Revenue, there are two circumstances where unemployment compensation is taxable. Those circumstances include when the taxpayer resided in Illinois as a resident or when the taxpayer was a non-resident but received their unemployment compensation from the Illinois Department of Employment Security.
Not all states around the country tax their unemployment benefits, but Illinois does. In addition to paying taxes on unemployment benefits to the state, Illinois residents may also need to pay additional taxes on their unemployment benefits to the federal government as part of their income tax filing.
One important facet of taxes in Illinois is that some residents are eligible for an income tax credit if they pay taxes on income to another state. The Illinois Department of Revenue reveals in its question and answer series:
“However, if you are filing as a resident or a part-year resident, you may be allowed to take a credit against Illinois Income Tax for income tax you paid to another state. See the instructions for Form IL-1040, Line 15, and Schedule CR, Credit for Tax Paid to Other States.”
If you have complex taxes that include income from another state, you might need to use the services of an accountant to help you file.
Stimulus Checks Aren’t Taxable
Many Americans around the country received a direct payment from the federal government to help with costs related to the pandemic. The payment would become known as the “stimulus” payment. A second payment was also sent to millions of Americans as part of another aid package passed by Congress.
Fortunately, the federal government has indicated that the Internal Revenue Service won’t look for taxes to be paid on these “Economic Impact Payments,” but there are circumstances when those payments will be taken by the government. There are also circumstances when you might get the payment in the form of a tax credit.
An article published by AARP explains:
“If, for some reason, you didn’t get any stimulus payment last year, but you’re owed one, you can get it this year when you file your 2020 tax return. If you don’t get the full amount that you were entitled to in 2020 or 2021 — you could also get that from your 2020 tax return.”
For example, anyone who has to claim a tax credit because they didn’t receive the initial payment might see their credit reduced if they owe the IRS money or are behind on child support payments.
The overall economic impact of the pandemic won’t be known for several years, but it’s possible that some families will be pushed into bankruptcy as a result of the nation’s economic collapse in 2020. In such circumstances, it’s best to speak to a bankruptcy lawyer to discuss bankruptcy options.
Are You Thinking About Bankruptcy?
Would you like assistance from an experienced legal professional with experience in bankruptcy law? Contact Suburban Legal Group for assistance with all matters relating to bankruptcy. A consultation is the first step.
DISCLAIMER: All information on this website is provided for informational purposes only and is not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein or any actions taken in reliance thereon.