Published July 14, 2020 
Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses and agencies from around the world in taxation, litigation and immigration legal matters.
This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C.
The topic of discussion is “Is Unemployment Compensation Received Taxable Income?” You can listen to this podcast by clicking here:
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TRANSCRIPT:
ATTORNEY: Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW
ATTORNEY: Coleman Jackson
Welcome to Tax Thoughts
- My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
- Our topic for today is: “Is Unemployment Compensation Received Taxable Income?”
- Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz,Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
- On this “Legal Thoughts” podcast our Public Relations Associate, Mayra Torres, will be asking the questions and I will be providing the answers to the questions on this important tax topic: Is Unemployment Compensation Received Taxable Income?
Interviewer: Mayra Torres, Public Relations Associate
Question 1:
What are unemployment benefits?
Attorney Answers Question 1:
- Unemployment benefits generally includes any amount of money received under any federal or state law program designed to protect taxpayers against loss of income caused by involuntary loss of employment or decrease in compensation.
Interviewer: Mayra Torres, Public Relations Associate
QUESTION 2:
Who is eligible to receive unemployment benefits?
Attorney Answers Question 2:
- Keep in mind that unemployment benefits, as a general policy, is governed by State and federal labor laws and are designed to replace in whole or part the loss of employee wages due to some involuntary lay off or employment disruption.
- Unemployment programs are administered by the States and each State has its own rules as to who qualifies and how they should apply. In Texas, the Texas Workforce Commission administers the Texas Unemployment Compensation System.
Interviewer: Mayra Torres, Public Relations Associate
Question 3:
- Well okay, I kind of understand. But there is a lot of talk about the CARES Act and something about$600 dollars people are receiving.
- What is the CARES ACT? Does it affect unemployment benefits… like, who qualifies and how they apply and how much they get and how long they can get unemployment benefits?
Attorney Answers Question 3:
- Those are excellent questions!
- The CARES Act was enacted into law on Friday, March 27, 2020. CARES stand for the Corona virus, Aid, Relief, and Economic Security Act. It is a $12, trillion-dollar economic relief package featuring extensive tax provisions. It is Public Law 116-136 (3/27/2020). And yes it does impact who qualifies for unemployment compensation, how they apply and how much they receive it and for how long if their loss income is related to Covid-19.
- Employees who lost jobs qualify
- Self-employed individuals qualify under the CARES Act
- Qualified individuals impacted by Covid-19 must file unemployment claims through the State governmental agency who regulate unemployment benefits in their State. Residence in Texas must file claims with the Texas Workforce Commission and follow all filing requirements and follow-up guidance that TWC requires to obtain their compensation. Keep in mind that TWC rules and requirements may continue to change as the State continues to reopen its economy during this pandemic.
Interviewer: Mayra Torres, Public Relations Associate
Question 4:
Okay…. And what about undocumented workers and self-employed people; can they file for
unemployment benefits with TWC too?
Attorney Answers Question 4:
Yes, workers and self-employed individuals do not have to be United States citizens or lawful permanent residents to qualify for unemployment. All residence of Texas who had employment prior to the Covid-19 Crisis can file for unemployment.
Interviewer: Mayra Torres, Public Relations Associate
Question 5:
What about the $600 everybody is talking about; how do unemployed people get that?
Attorney Answers Question 5:
- The CARES Act not only expanded the eligibility for unemployment to self-employed individuals like I mentioned before; the Act also extended coverage by 13 weeks and provides unemployed individuals with an extra $600 per week of federal assistance on top of the State benefits.
- Qualified individuals apply for this extra $600 per week federal benefit when they file their State Unemployment Claim. Again, in Texas everything is filed with the Texas Workforce Commission.Contact TWC for help in filing an unemployment claim in Texas. The TWC rules are in flux as the State reopens during this pandemic.
Interviewer: Mayra Torres, Public Relations Associate
Question 6:
- Okay, I was just curious; many folks are afraid of going back to work because they might get sick or get their families sick.
- Can somebody continue to receive unemployment even though their boss tell them that they can come back to work now?
Attorney Answers Question 6:
- Unemployment benefits are for people who loss their jobs or income due to no fault of their own. People who quit their jobs generally will not qualify for unemployment compensation in Texas. I say generally because facts and circumstances matter. Application of the law can be messy at times because facts matters. Perhaps an unemployed individual can make out a winnable case that it’s too dangerous for them to return to work during the Covid-19 pandemic.
- But, Keep in mind that people who file initial and continuation claims for benefits with TWC provides self-certification under penalty of perjury that they are otherwise able to work and are available for work under the Texas Labor Code that governs such matters in Texas.
- The rules concerning this question may change from day to day or week to week as the State of Texas reopens during this pandemic.
Interviewer: Mayra Torres, Public Relations Associate
Question 7
- Okay, I understand; it sounds like it just depends on all the facts, and circumstances and State and federal government rules updates.
- Another BIG QUESTION A LOT OF PEOPLE HAVE IS THIS!
- Do unemployed individuals have to pay taxes on unemployment benefits that they receive?
Attorney Answers Question 7:
- The tax treatment of unemployment benefits received depends on the type of program paying the benefits.
- I am going to try to keep this simple; but folks must understand that the federal and state program funding the compensation can impact whether the amounts received are taxable.
- I am going to limit my answer to only three types of unemployment benefits that I think are germane to the types of benefits that most people are receiving during this Covid-19 national emergency:
- Types of Unemployment Benefits that are Taxable
- Benefits paid by a State or the District of Columbia from the Federal Unemployment Trust Fund
- State Unemployment insurance benefits
- Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974
- Conclusion: Most people receiving unemployment due to Covid-19 falls under one of these programs. The benefits are taxable!
Interviewer: Mayra Torres, Public Relations Associate
Question 8
I think I’m getting it now! What about the extra $600 per week from CARES Act, is it taxable too?
Attorney Answers Question 8:
- Yes, unemployment compensation received under the CARES Act is taxable because the CARES Act does not specifically exempt the $600 extra unemployment compensation from federal taxation.
- In fact, the CARES Act states that in the event there is a conflict in the CARES Act with provisions in the Disaster Relief and Emergency Assistance Act of 1974, then the provisions of the Disaster Relief and Emergency Assistance Act of 1974 controls. As we have seen, benefits received under the 1974 Act is taxable.
- So, the answer to your question is, yes, unless Congress exempts the $600 from federal taxation, it is taxable under Internal Revenue Code Section 85(a).
Interviewer: Mayra Torres, Public Relations Associate
Question 9
When does the taxes on that unemployment money have to be paid?
Attorney Answers Question 9:
- Those filing for unemployment can ask TWC to withhold the appropriate amount of tax from their unemployment compensation. Make this choice by giving TWC Form W-4V, Voluntary Withholding Request; or
- They may have to file estimated taxes by the 15th day of the end of each quarter. They can compute this amount on Form 1040-ES and make their estimated payments to the IRS by phone,online or by mail.
Interviewer: Mayra Torres, Public Relations Associate
Question 10
What if people don’t know and never ask TWC to withhold the money and never do this
estimated tax thing?
Attorney Answers Question 10:
- If taxpayers don’t pay enough taxes during a year, either by withholding or by estimated tax deposits, or some combination of the two, they may have to pay an underpayment penalty.
- The federal tax system in the United States is a pay-as-you-go self-certification system. But keep in mind, the IRS and the taxpayer will probably receive a Form 1099-G from TWC for all unemployment compensation paid during the course of the calendar year.
Attorney’s Concluding Remarks:
This is end of Legal Thoughts for now
- Thanks for giving us the opportunity to inform you about taxation of unemployment compensation. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.
