During these days of economic instability, two things remain more certain than ever: taxes and a need to save money. (Ft. Worth CPA All Stars: More Important Than Ever To Save On Taxes)
Remember, unemployment is taxable just like ordinary income. This means that those who receive unemployment benefits will have to pay taxes on those benefits.
For those who fall into the 12% tax bracket, 12% of those benefits will be federally taxed.
Unemployment benefit recipients can opt to have 10%, 12%, or the percentage for whichever tax bracket they fall in withheld from their benefit payments. Note, however, that they have to request for that to happen.
Withholding tax is highly recommended because if you don’t, you’re going to file your 2020 taxes next year and if you are used to getting a return, it probably won’t be as much. And, if you are used to owing you are going to owe more, without a doubt. You don’t want to put yourself in a situation where you owe the IRS more money than you thought you did.
In addition to having the taxes to consider during this time of economic uncertainty, people should be looking into how they can save money and adjust to a loss of an income.
Now is also a good time to pay down any student loan debt that is currently not accruing interest if you are able to pay on it. Also, pay ahead on house or car payments and banking that money back in a checking or savings account.
A Good Time To Save
Those who have the three to six months’ worth of expenses already set aside should maybe start looking into interest-bearing accounts or money markets. Also, look into investable assets such as stocks, bonds, or mutual funds, for beyond those three to six months.
You want to make sure you have the three to six months worth of expenses set aside before considering any investments.
Even though the extra $600 from the stimulus package for unemployment recipients has ended, depending on how the benefits were handled and how people are handling the pandemic, people could still start to save money.
The most valuable money that you earn is the money you have today. That’s a simple fact. Start now if you haven’t been. Will you make up for the lost time? Probably not, but you should still start now, right now. It’s important.
Also look into refinancing your home or car loan to help save money.
Start looking at the discretionary expenses and start looking at eliminating as much as you can. If income is about to decrease by $600 a week, that can be a pretty big percentage of somebody’s income. If you are looking at losing 50% of your income, you need to start looking at cutting the same ratio out of your expenses or you are going to find yourself underwater. You don’t want to do that. You don’t want this to cause you to go into debt so you have to borrow to make up for those expenses.
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Source: The Daily Jeff