Be Prepared For These Pandemic-Related Tax Surprises
Don’t get shocked by a high tax bill! Be prepared for these pandemic-related tax surprises when you
file your 2020 tax return.
• Taxes on unemployment income. If you received unemployment benefits in 2020, you needto report these benefits on your tax return as taxable income. Check to see if either federal orstate taxes were withheld from unemployment payments you received. If taxes were notwithheld, you may need to write a check to the IRS when you file your tax return.• Taxes from side jobs. Did you pick up a part-time gig to make ends meet? Paymentsreceived for performing these jobs may not have had your taxes withheld. If this is the case,you’ll need to pay your taxes directly to the IRS on April 15.• Unusual profit-and-loss. If you run a business that was hit by the pandemic, you may findyour estimated tax payments were either overpaid or underpaid compared to normal. Nowthat 2020 is in the books, run a quick projection to ensure you are not surprised with anunexpected tax bill when you file your tax return.• Underpayment penalty. If you did not have proper tax withholdings from your paycheck oryour estimated tax payments weren’t enough, you could be subject to an underpaymentpenalty. While it’s too late to avoid a penalty on your 2020 tax return, the solution in the futureis to make high enough estimated tax payments each quarter in 2021 or have the appropriateamount withheld from your 2021 paychecks.• A chance to claim missing stimulus payments. (A good surprise!) If any of your stimuluspayments were for less than what you should have received, you can get money for thedifference as a tax credit when you file your 2020 tax return.
Please use these examples to prepare yourself for a potential tax surprise during the uncertainty
caused by the ongoing pandemic.