By coinnews 
00:00 Speaker A
This week on wealth, we’re helping you budget for burnout. Walking you through the financial impact, if you quit your job or are unexpectedly laid off. Today, we’re focusing on the impact to your taxes. Joining me now, we’ve got Mark Steber, who’s the Jackson Hewitt Tax Service Chief Tax Information Officer. Mark, good to see you again. I want to go through some different scenarios and the tax implications for each of them. And perhaps we can start with unemployment benefits. If you are laid off and start receiving benefits, what does that mean for your taxes?
00:35 Mark Steber
Well, first thing you need to know is you’re not alone. The IRS receives tens of millions of these on tax returns each year. But it’s important to remember unemployment benefits, even though you’re in a financial crunch time, that’s going to be fully taxable at tax time. And not only is it taxable, you’re probably going to get a 1099G for government payments. So you can’t really leave it off your tax return without some risk. So just know that either short term or long term, unemployment benefits are taxable for federal and it varies from state to state. So don’t get surprised by that, plan for it, budget for it accordingly.
01:18 Speaker A
Now, what about taxes on severance pay? Say you and your employer, you go separate ways, whether decidedly, and in many cases, it’s undecidedly. How do you make sure you go about that effectively?
01:40 Mark Steber
Yeah, severance pay is particularly sticky. As it’s called pay, it is also without much surprise, taxable. Now what catches people off guard, sometimes those packages are big, to medium, to even, you know, small, but it’s all taxable. And you generally do have taxes withheld on that, unlike unemployment benefits where you have to opt in to have your withholdings, you know, on those payments and many people do not. The problem with your severance packages, not only is it taxable, not only is it just going to go on your tax return, generally, they don’t necessarily withhold enough, especially if it’s a larger package and pushes you into a higher bracket at tax time. You may be underpaid there as well for a double whammy, when it comes to tax time on unemployment and severance pay, all taxable. You may not have had any tax withheld on your unemployment, and the amount you had withheld on your severance might not have been enough to compensate for the new rate that you’re in because it’s all ballooned into one year. So that’s why it’s critical that you do a mid-year checkup, and all throughout the year when you have one of these big life changes, like unemployment short term or even longer term.
03:06 Speaker A
So let’s say you lose your job and then start a side hustle to make some extra cash. How do the taxes work there?
03:17 Mark Steber
Yeah, that’s the triple whammy. If you’re making income, and that’s why it’s important to talk to a tax pro, even side hustle, short term, long term, large amount, small amount, that’s generally going to be taxable on your net income. And not only that, if you’re getting paid through those third-party payment apps, like PayPal and so forth, you’re going to get another 1099k if it’s over a small amount like $2,500. And so is the IRS. So you can’t hide from that either. So again, it’ll be important that you budget. It’ll be important you set money aside for your taxes for unemployment, severance pay and that side hustle net income. But the good news is, there’s a lot of deductions available, and we saw this during the pandemic, with those 10, 20, 30, 40 million people, even with jobs, especially those without, that do have side hustles, a lot of deductions, a lot of tax breaks, a lot of things you can do to offset that income. Don’t overlook those and leave them off because the IRS is not going to come around and say, here’s some benefits. They are going to come around and say, hey, you didn’t put this income on your tax return, you owe money, and that’s usually at the worst time.
04:45 Speaker A
So let’s say you were laid off and then you find a new job, but the company is based in a different state. What do people need to know about the tax implications there?
04:59 Mark Steber
Yeah, that’s a great question, one that often catches people off guard. You owe federal taxes on all income during the year, and we talked about those, but generally you owe income in the state where you earn the money. Now a lot of things have changed since the pandemic, but where you earn it, where your employer has direction and control, is generally going to be where you owe it, whether you’re there or not. But what catches people off guard, if you’re in one city, like New York, and you owe state taxes there, you get laid off, you move across the river to New Jersey, now you’re going to owe New York money on the New York earnings, and then New Jersey on the New Jersey earnings. Even if you’re living in New Jersey now, you still might owe in that prior state. So if you have a life change, like laid off, or even if you don’t, and when you move to a different state for a job, you know, you need to pay attention to those state tax implications because states are very, very money hungry, and they’ve gotten very good at tracking you even if you’ve left the state.
06:03 Speaker A
Yeah, I know athletes know that all too well with some of the earnings that come in from competitive events in different states. All right, we got to leave things there, Mark. Would love to continue this conversation. Very valuable insights.
06:20 Mark Steber
Great to be here. Good luck to you and good luck to those who’ve had an unemployment life change.
06:27 Speaker A
Certainly.