Being temporarily Furloughed can affect your taxes
Being temporarily Furloughed can affect your taxes
By the pandemic COVID-19, many Americans have been affected by the financial perspective as some have lost their jobs while some have been furloughed from their work. When you lose your job or rather you are laid off, there is no assurance or promise that you would be re-hired by the same organization. However, if you are furloughed it means you can come back and start working again when the circumstances change. In the case of furlough, you will not have to face the formalities of the re-hiring process and even would be able to enjoy employer benefits such as health insurance benefits even during the times of being furloughed.
In case, you have been furloughed you must have received the Unemployment benefits and you may not be sure about the taxability of the Unemployment benefits. The Stimulus payment that has been received under the CARES Act is not taxable. However, the unemployment benefits are taxable and you would have to report them in your 2020 tax returns. After your return to work, you would be receiving your salary check and your Unemployment benefits would be coming to an end. The salary you are going to receive would remain taxable. However, if you are re-hired into your organization but with a lesser number of work hours then you would still be receiving the unemployment benefits.
What to expect while filing the tax returns?
From a tax refund perspective, what can you expect while you are filing your tax returns for the year 2020? The tax refund you obtain would mainly depend on the amount you have taken out of your salary paycheck for the Income Tax withholding. In case you have taken out more in each pay period than the Income taxes you owed then while filing a tax return it’s obvious for you to obtain a tax refund.
- During the year 2020, if you have received lesser paychecks as you were furloughed for a particular period of the year then there would have been few pay periods during which the withholding was taken out. So, this would result in a lower refund at the time of filing your tax returns.
- Moreover, if you did not have any taxes that have been withheld from your unemployment benefits then you might not be having enough taxes withheld for covering taxes at the tax rate.
- Furthermore, you can make a voluntary request for withholding 10% of the unemployment benefit which you have received. This can be done by filling the Form W-4V i.e. Voluntary Withholding Request.
- Since you have earned quite less during the year 2020 due to unemployment it would affect your tax rates too. This would mainly depend on for what duration you were furloughed and what was the amount of other income you had during that year.
Steps that can be taken for tax rates if furloughed
If you have been furloughed for some time during the year 2020 and there has not been enough withholding done from the Unemployment benefits, then the below-mentioned steps can be taken.
- You can easily adjust your withholding once you join back your work by filling the new Form W-4 Employee Withholding Certificate.
- You can claim various credits and deductions such as the Earned Income Tax Credit (EITC), some education tax benefits, or the Saver’s Credit, etc. You might not have been eligible for taking these credits earlier as your income would have been higher than the income threshold.
- The Coronavirus Response and Relief Supplemental Appropriations Act have a special look back provision. The lookback provision would help those workers who had lower income during the year 2020 or received Unemployment income in compensation for their regular wages in obtaining more tax credits and larger refunds.
Conclusion
Hence, if you have been furloughed then the above-mentioned guidelines on the tax rules would be helpful for you to understand the credits, deductions along with tax refunds.
Recent Comments