Money Rehab with Nicole Lapin - Listener Question: “Do you have to pay taxes on unemployment?”

Episode Date: April 8, 2021

Nicole gives a listener advice on what to do about taxes if you filed for unemployment last year, and debunks Dave Ramsey’s statements that people collecting the stimulus check are "screwed." Nicole says: You are not screwed. From This Episode: Report your unemployment benefits on your Federal Tax Return, which will say “Form 1040”. You’ll need Form 1099-G, which you should have received from your state. You can see how much you received in unemployment benefits in Box 1. You’ll need to report this amount on your tax return on line 7, Schedule 1.  You also have to report any taxes that were withheld from your unemployment benefits… to find that number, look at that trusty Form 1099-G again… the amount of taxes that were withheld from your unemployment benefits is in box 4. You report that amount on line 25b of your tax return. If you have an income of $72,000 or less, you can file for free using the IRS Free File program. If you’re a veteran, check out MilTax for free filing options. Find out more about VITA here. VITA is an organization that offers free tax coaching to folks in low-mid income brackets, as well as persons with disabilities, the elderly and individuals with limited English proficiency who need assistance in preparing their taxes.  Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, this question really speaks to that issue that millions of Americans faced this year. And it comes to us from Josh in Boston. So this year I was laid off because of COVID and spent part of the year collecting unemployment benefits. But I'm wondering, are they taxable? I'm just trying to figure out here how to do what's best with what I have, but it all feels so dark. I hear all these financial experts saying that all of us on unemployment and collecting the stimulus is screwed. And it just makes me really anxious. So first of all, I want to say, Josh, I am so sorry to hear you were laid off.

This year has been so hard for so many people. Over 70 million Americans have filed for unemployment since the beginning of the pandemic. So you are not alone. And I would never assume that I could understand where you are right now, but I can offer my own story. When I was growing up, I had a super broken home. Oftentimes people think I grew up with a silver spoon in my mouth. I did not. I barely had a spoon of food in my mouth growing up.

So I can really relate to the feelings of stress and anxiety around money. I understand why you're feeling hopeless when it comes to getting your financial life together because you're in a bad spot now, but this bad spot is not going to last forever. I remember those days really distinctly, and in fact, I had lots of flashbacks recently when another financial expert, Dave Ramsey, came out and really said something that rattled me, boiled my blood. He basically came out and said, you're screwed if the stimulus check changes your life. And I just felt immediate deja vu. I felt those hunger pangs, the pain, and then just this indignation because I think this is the type of rhetoric that is not

helpful for any of us who are struggling in one way or another. There is no shame in struggling, and I believe that advice by definition should be given to those who need help. So, of course, you're not screwed. Financial advice isn't consumed by people who have their finances figured out. It's for those who are struggling. And today, during a global pandemic, millions are hard pressed to make ends meet. And I know what those days are like. That doesn't mean that people are bad because they can't make ends meet. It doesn't mean they aren't smart. It means that they're in the middle of a battle in the ring with darkness, likely not for the first time, and likely for a combination of macro and microeconomic issues that will not be

fixed in time for dinner. People currently going through hard financial times who need help putting three meals on their table for their families are not screwed, Dave Ramsey. They're hungry. People for which $600 or $1,400 changes their lives today aren't screwed. They need a hand getting out of that ring of darkness. You aren't screwed if you need help. I will not lie to you. I've never lied to you. But just like I wouldn't lie to my former self, I'm not going to tell you it's going to be okay tomorrow, but I am going to tell you it is going to be okay. There are people who have once felt financially helpless too, who now are financially secure and are ready to meet you with that extra kindness and compassion. There are experts like yours truly who remember

those hunger pangs, who remember the pain, who hold the pain of walking through financial flames deep in our sense memory. We're the ones holding buckets of water for those still battling those flames. Again, I just want to remind you, Josh, and anyone who feels this shame about taking unemployment, getting the stimulus check, again, you are not screwed if you need this. If you needed a bridge over troubled water, it is okay. For a long time, I had imposter syndrome. I just pretended like everything was okay. I felt like, you know, even in the financial services space, if I admitted anything like this, I thought I was going to be found out or somehow I would be disqualified or canceled. But honestly, little did I know, it was actually my biggest superpower. The superpower to honor and be vulnerable about where I came from.

It's a superpower to remember and to empathize with what that's like and to champion for those still there. So remember, we've all been in dark times. I have seen death in its eye many times. The pandemic was not my first apocalypse. And as soon as I could honor that story and embrace my true, authentic self and exactly where I came from, I could turn what I thought was my biggest problem into what was actually my superpower.

And you can too. So now that we've addressed the mindset and we know how important that is, let's tackle the tax stuff. And so what I want to do is just tell you the real deal with unemployment benefits. They're taxable, which totally sucks. If you're thinking that that doesn't make sense, you're totally right. If I were in charge of the world, that's not how this would go down. The government is giving you money when you need it most. So why the fuck would they take it back is beyond me. This is pretty breaking news as of last month.

Actually, if your household income was less than $150,000, unemployment benefits up to $10,200 will not be taxed by the federal government. So that's the good news, but the catch is that while the federal government won't tax your unemployment benefits, your state might. So you'll need to visit the website of whatever state you live in and the unemployment office to check what the state situation is. But regardless, you're going to need to report your unemployment benefits on your taxes. And I know the tax return paperwork is just a jumble of boxes and numbers and forms and bullshit, frankly, and a lot of subcategories. But don't worry, I will tell you exactly where to look and what numbers to write down. Unfortunately, that means I'm about to throw some form and box numbers at you. I mean, I do not make the rules, sir.

I just make the rules work for you. Deep breaths, everyone. So let's do this. You'll report your unemployment benefits on your federal tax return, like I mentioned, which will say Form 1040 at the top. So first you need Form 1099-G, which you will receive from your state. And if you are like totally already tuning me out with these numbers, we will have them in the show notes for you. You can see how much you received in unemployment benefits in box one. You'll need to report that amount on your tax return on line seven, schedule

one. You'll also report any taxes that were withheld from your unemployment benefits. And if you want to find that number, you have to look at that trustee form 1099G yet again. The amount of taxes that are withheld from your unemployment benefits is in box four, and you report that amount on line 25B of your tax return. Who saw we did it? I know this is overwhelming. If you have somebody helping you, then hopefully they will know. But don't assume that anyone is going to care as much as or more about your taxes or your

money as you are. So even if you have somebody helping you, go in prepared with some of these numbers, some of these form numbers. If nothing else, they know you mean business and they can't fuck with you. So write some of them down if you aren't doing them yourself. Some resources that also will get you through this suck fest. If you have income of $72,000 or less, you can file using the IRS free file form. If you're a veteran, check out Mill Tax for free filing options. There's also a volunteer income tax assistance program, VITA, which is an organization that offers free tax coaching to folks in low, mid-income tax brackets, as well as people with disabilities, the elderly individuals with limited English proficiency who need assistance preparing their taxes. Joe, my partner, my

co-creator, he told us about EITC, earned income tax credits, on another episode about taxes. He was telling us about the idea that this is the organization that is legit. There are a bunch of scammers out there. Do not get scammed out of your hard-earned money. If you need help, there are free resources for you. I know that was a lot of info I threw down. I promise it's for your own good. And if you want to dig more into this and check out those links,

they are in our show notes. You can also mosey on over to our Instagram page at Money Rehab Show. That's it for today's episode. That is all I'm going to throw down today. That was plenty. For today's tip, you can take straight to the bank. Just remember, this year, unemployment benefits up to $10,200 will not be taxed by the federal government. So why procrastinate? Get out your 1099G. Get her done. We will link all of the resources in the show notes. We will share them on our Instagram. Go to Money Rehab is our handle. Come hang out with us there. I will chat with you tomorrow for some more Money Rehab. But in the meantime, don't do anything with your money.

I wouldn't do. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you

can get it together and get it all. You spend my money, money, money. You spend my money, money. You spend my money, money, money. You spend my money, money, money.