With the massive economic shutdown of 2020, millions of Americans who lost their jobs or were temporarily furloughed filed for unemployment benefits.
Filing for unemployment benefits has proven to be quite challenging for many as the system has been overwhelmed. According to reports by the US Treasury Department, over 36 million Americans applied for benefits. As of April 2020 $48 billion in benefits had been distributed.
Along with the frustration of being out of work, myths about these benefits are all over the place. I’d like to clear up some common myths about unemployment.
Unemployment benefits are tax free.
Benefits are subject to federal taxes and your state taxes if that applies where you live. Many people are under the assumption that they do not have to pay taxes and that the government will waive taxes due to the Covid pandemic. As of June 2020, you still must pay taxes on any money you receive.
If you have not set up to have taxes taken out automatically from your weekly benefits, make sure to log on to www.irs.gov and make estimated tax payments.
Too many people claiming benefits means less money for you
Unlike the PPP program which had a limited amount of money to help small businesses, the unemployment benefits are not distributed on a first come first served basis.
It’s easy to see where this misconception comes from when states such as California were applying for loans from the Federal Government to pay out unemployment benefits.
Your employer pays into unemployment insurance through federal and state payroll taxes. More people receiving benefits does not mean you’ll not receive what you are entitled to.
The extra $600 in aid lasts the entire time you are collecting benefits
As of June 2020, no extension has been passed. The additional money which is part of the CARES act is set to stop on July 31.
If I am receiving unemployment benefits I will not receive the federal stimulus money
False. Unemployment and federal stimulus money are two separate programs and completely independent of each other..
The IRS will garnish your stimulus check for back taxes
The IRS says it will not take your check for back taxes, however, if you owe back child support your state may garnish the money up to the amount you owe.
You must have a bank account to receive your stimulus check
This is partially correct. If you are to have money sent electronically, you must have a bank account on file with the IRS. Often this is the account which any refund you may get will be deposited. If you do not have an account on file, you should receive a debit card in the mail which is preloaded. Make sure to open all mail as it can appear to be junk mail.
If you receive stimulus money from a deceased relative you can keep it
There have been instances where the heirs of someone who has recently passed received a stimulus check. No, you cannot spend this and must send it back.
You must apply for a stimulus check in order to receive one
In most cases you do not need to do anything to receive the check. The exception to this is if you have not filed taxes in the past few years due to your income being below the threshold. The threshold in 2019 was $12,200 for single filers and $24,400 for couples.
Stimulus payments are taxable
Unlike unemployment benefits, the stimulus payments are not taxable. The payments are an advance credit on your 2020 taxes that you’ll file in 2021. While you do not owe taxes, the IRS has not yet explained how this credit will be handled.
A second stimulus check is coming and will be larger than the first
Well, this may happen. Additional stimulus money for families is part of the HEROES act (Health and Economic Recovery Omnibus Emergency Solutions). The HEROES act is a $3 trillion dollar package that includes additional money. This was passed by the House of Representatives in May but has not yet gone to the Senate. Whether or not this passes the Senate, the Wall Street Journal is reporting that the White House is working on it’s own plan for additional stimulus funding.
It’s very difficult to always know what is true and what is a common misconception. To stay updated on the latest developments, join my Financially Fabulous, Financial Wellness with Vicki private group on Facebook. I keep members updated with the latest developments.
