Thousands of Oregonians, many of them for the first time, are now receiving unemployment benefits. The Oregon Department of Revenue wants to remind recipients that these benefits are taxable, and they should consider having tax withheld from their benefits to avoid owing taxes when they file their federal and Oregon income tax return next year.
By law, unemployment benefits are taxable and must be reported on a 2020 federal and Oregon income tax return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.
Withholding is voluntary. Federal law allows any recipient to choose to have a flat 10% withheld, and Oregon law allows recipients to choose to have a flat 6% withheld from their benefits to cover part or all of their tax liability. To do that, fill out Form 1040WH, Authorization for Tax Withholding, and send it to the Oregon Employment Department. Don’t send it to the IRS or the Oregon Department of Revenue.
If a recipient of unemployment benefits doesn’t choose withholding, or if withholding is not enough, they can make quarterly estimated tax payments instead. The payment for the first two quarters of 2020 was due on July 15. Third and fourth quarter payments are due September 15, 2020 and January 15, 2021, respectively. For more information, including some helpful worksheets, see Publication OR-ESTIMATE, available on www.oregon.gov/dor.
Unemployment benefit recipients who return to work before the end of the year can use the Oregon Personal Income Tax Withholding Calculator to determine if they’re having enough tax taken out of their paycheck. This online tool can help any worker or pension recipient avoid or lessen their year-end tax bill or estimate the refund they want.
In January 2021, unemployment benefit recipients should receive a Form 1099-G, Certain Government Payments, from the Oregon Employment Department, showing the amount of unemployment benefits they received during 2020 in Box 1, any federal income tax withheld in Box 4, and Oregon income tax withheld in Box 11. Recipients will report this information, along with their Form W-2 income, on their 2020 federal and Oregon income tax returns.
For additional resources and more information about applying for unemployment benefits, visit unemployment.oregon.gov.
You can visit www.oregon.gov/dor to get forms, check the status of your refund, or make payments. You can call 503-378-4988 or 800-356-4222 (toll-free) or email email@example.com for additional assistance.