Are You Working From Home or Collecting Unemployment? Be Aware of These Tax Implications

working from homeThe COVID-19 pandemic has changed our lives in many ways, and some of the changes have tax implications. Working from home or collecting unemployment are two common tax situations that many people are facing now.

Working from home

Many employees have been told not to come into their workplaces due to the pandemic. If you are telecommuting — you work at home, and communicate with your employer by telephone, videoconferencing, email, etc. — you should know about the stringent rules that govern whether you can deduct your home office expenses.

Employee home office expenses aren’t currently deductible, even if your employer requires you to work from home. Employee business expense deductions, which include the expenses an employee acquires to maintain a home office, are miscellaneous itemized deductions and are disallowed under the Tax Cuts and Jobs Act from 2018 through 2025.

Although, if you’re self-employed and work out of an office in your home, you may be eligible to claim home office deductions for your related expenses if you satisfy the strict rules.

There are ten jurisdictions that require employers to reimburse employees for necessary expenses they incur as a result of their job duties. They are the District of Columbia, California, Illinois, Iowa, Massachusetts, Montana, New Hampshire, New York, Pennsylvania and South Dakota. Though, it may be difficult to determine the amount of some of those expenses and the extent to which they were necessary.

Collecting unemployment

Millions of Americans have lost their jobs due to COVID-19 and are collecting unemployment benefits. These benefits are taxable and must be reported on their federal income tax returns for the tax year they were received. Taxable benefits include the special unemployment compensation authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Unemployment recipients can have taxes withheld from their benefits now in order to avoid a surprise tax bill when filing a 2020 income tax return next year. Under federal law, recipients can have 10% withheld from their benefits to cover part or all their tax liability. To do this, complete Form W4-V, Voluntary Withholding Request, and give it to the agency paying benefits (not the IRS).

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