Before I run the numbers, let me explain that in 2020, everybody got to deduct $12,400 from their income before they pay a cent of tax. Now let's look at how much tax you actually owe. If you withheld and lived in a state that got it right, 10% of that was taken out, or $2,500. Let's say you're single, you got $25,000 in unemployment in 2020 and had no other income. Withholding will change how much you owe or get refunded, but it doesn't change how much you *should* have paid to the IRS during the year. Your withholding or lack thereof actually makes no difference in how the UCE works. It subtracts from how much unemployment you received, not how much tax was withheld.
(And some states screwed that up and didn't tax 10% of all unemployment income.) So even if the UCE didn't exist, you would still need to file your taxes this year to reconcile that guess with the amount you really should have paid.Īll that said, the UCE does NOT subtract from your withholding. It wasn't even a very educated guess-just a flat 10% no matter what other income you had or didn't have. How does this apply to unemployment? If you had money withheld from your unemployment, like all withholding, it was a guess. For example, if your job guessed that you should have paid $1,500 in tax but you really should have paid $1,000 in tax, then your job paid $500 too much to the IRS on your behalf and you get that back when you file. That's why you file your taxes at the beginning of the next year-to reconcile the withholding (guesses) from the previous year to what you actually should have paid. And a guess is the best they can do-no one can know exactly how much tax you need to pay until the end of the year, but the IRS wants the money during the year, not at the end of the year. Whoever is withholding your money is guessing how much tax you'll have to pay on the money they're giving you. Simply put, tax withholding (in any context) is a GUESS. I'll start with the general concept of withholding. So this is my attempt at that in particular, I want to talk about the concept of withholding taxes and what it means and doesn't mean toward the UCE. There have been a lot of requests asking for an ELI5 version of the $10,200 unemployment compensation exclusion post. Here, please treat others with respect, stay on-topic, and avoid self-promotion.Īlways do your own research before acting on any information or advice that you read on Reddit.
#Calculate 10200 unemployment tax break how to
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