 Income tax 2022-2023, unemployment compensation. Let's do some wealth preservation with some tax preparation. Most of this information comes from the Form 1040 Instructions Tax Year 2022 Instructions for Schedule 1, Additional Income and Adjustments to Income, Additional Income section, which you can find at the IRS website, IRS.gov, IRS.gov, when looking at the income tax formula, we are once again looking at line 1, that being income, remembering that the first half of the income tax formula is in essence an income statement. Although a funny one, we've got income up top, the equivalent of deductions down below to get to the bottom line, usually net income, but this time taxable income, our objective being the opposite of a normal income statement, where we're trying to get the taxable income as low as possible, installation for low income housing, as opposed to net income, we're typically trying to get as high as possible. So we're focused on the income line. So the question is, is this item we're thinking about, in this case, unemployment compensation, something that needs to be included in income, or is it exempt from income? Now unemployment compensation in its name says compensation. So you would think by that term, it might be something that would have to be included in income, but you also might think that this is kind of a welfare or benefit kind of program. So maybe it would kind of support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course, each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Defeat the purpose to get money from the government, which would then have to be taxed and then you have to pay it back to the government. However, normally unemployment compensation is generally going to be a taxable event. Obviously this happens when you're in employment and then you cease employment and then the state in certain circumstances may be able to compensate you for that unemployment compensation. The general idea of that policy being that a sudden loss of employment can be kind of a shock, employable or very employable and you might need some temporary wages in order to find and seek and get employment elsewhere. So it's kind of supposed to help in that kind of transition period. But remember, there's a difference between the federal government and the state government. So usually unemployment compensation isn't something that makes sense from a federal government standpoint, because even if they were to apply that on a federal level, how would they possibly do that in a fair way given the fact that the states have different living conditions and so on through the cost of living itself is already a complicating factor that would make that a difficult situation. Usually those types of things happen on a state and local level, which makes a lot more sense to me to do that kind of thing of course at a state and local level. So you have a situation where there's an income from the state that of course could be an untaxable kind of event from the federal income tax type of system and that is generally what we have. Okay, so where would it be reported? We've got the Line 8 other income from Schedule 1 and we've got the Schedule 1 then where we have the unemployment compensation. We'll compensate money up front. Now the unemployment compensation, you're generally going to get a form just like you would for any other kind of potential income from if it was the state that gave you the unemployment and that form might be a 1099G type of form. Now in prior years due to the whole COVID pandemic type of thing, there was this whole weird thing with the unemployment where they tried to basically say that the unemployment or part of the unemployment is not going to be includeable in income due to the whole crisis and due to them basically saying the government is shutting people down. So obviously it's not your fault if the government says you cannot work due to social distancing and so on. So then they tried to say we'll try to give a benefit to people by not having the unemployment they receive as a taxable event but they kind of put that in a little bit late. So a lot of people still filed with the unemployment in place and then the government was trying to fix it but that new law was not updated so now we're back to the normal situation where the unemployment is going to be included. Now also just note that unemployment for the last couple of years has also been an area where fraud has kind of come into play because we have all these people that are likely unemployed and the fraudsters came in and tried to take advantage to try to receive unemployment compensation for those who possibly didn't file for unemployment but possibly could qualify for the unemployment. So if you do receive like a 1099 G then then and you didn't get any unemployment then you're going to want to to address that because somebody probably got paid unemployment and basically stole your identity which means you've got an issue with regards to the state that they stole your identity and possibly if they could steal your identity there they might be able to use your social security number and whatnot to file a fraudulent tax return. So you could take action on that. We saw a lot of like tax news last year that was that was concerned with this type of thing so just be aware of that. Okay line seven unemployment compensation you should receive a form 1099 G showing in box one the total unemployment compensation paid to you in 2022 report this amount on line seven. So usually it's a pretty straightforward type of thing. If you're a tax preparer usually you deal more with the questions than with the difficulty of doing the data input the data input usually being fairly straightforward. The questioning being hey look I lost my job I got unemployment compensation why should I have to include that in income and it's like well because it's compensation you have to include it in income generally and it is what it is usually and then the other issue of course is going to be if they got a significant amount of unemployment compensation oftentimes they didn't withhold on it. So when you're a W2 employee you have to fill out that W4 form so the employer acts as the tax collector on your behalf takes your money from you before it even touches your pocket and they give it to the IRS directly. The unemployment isn't required to do the withholding you can request to do withholdings but most people don't so if there's a significant amount of unemployment then it's possible that that's going to cause a situation where they they have underpaid their taxes due to not having any withholdings. However also just note that if someone got fired in the middle of the year or laid off or whatever you want to call it in the middle of the year then the withholdings that they had for that that part of the year so if they had withholdings for like three months of the year and then they got laid off after three months the withholdings for that three months are going to be very high compared to three months of income because because remember we have a progressive tax system so it's not like they got taxed at 15 percent you know evenly no matter how much they earned if they were projected to earn a hundred thousand dollars but they only worked for three months then the withholdings that were withheld from them are going to be based on a hundred thousand dollar salary the yearly salary but they didn't earn a year's worth of salary therefore they're going to have with over withheld and then they're going to pick up the unemployment compensation which they're probably not going to withhold anything on and so maybe those two things balance each other out but that's you know again it's a messy situation to try to predict but those are kind of some things to just keep in mind. So caution so if the amounts reported in box one of forms 1099g is incorrect report online seven only the actual amount of unemployment compensation paid to you in 2022 so in other words if you got unemployment 1099g but you didn't actually get unemployment that's possible that's an indication that fraud might have taken place you would like to like any incorrect 1099 go back to the issuer of the 1099 correct the problem there if possible telling them to give a new 1099 to the government to the IRS because otherwise the iris is going to have an unmatching 1099 from their side to your side what you don't want to do is report an incorrect amount on the return but if your 1099 doesn't match the tax return the iris will almost certainly you know question it because they're going to say hey i got a 1099 based on this and you're going to say yeah but it was wrong and you're going to have to go through that how do you not go through that you try to go through the issuer of the 1099 tell them to give the iris an updated 1099 with the correct information on it so if you made contributions to a government unemployment compensation program or the government paid family leave program and you aren't itemizing deductions reduce the amount you report online seven by those contributions so if you are itemizing deductions see instructions for form 1099g if you received an overpayment of unemployment compensation in 2022 and you repaid any of it in 2022 subtract the amount repaid from the total amount you received enter the result online seven also enter repaid and the amount you repaid on the dotted line next to line seven so we've seen a similar situation in prior presentations in that if the amount on the on the report the 1099 is incorrect then if you report something less than the amount on the 1099 the iris will probably have a problem and make a correction for you if you enter an amount greater than the amount on the 1099 the iris is probably not going to have a problem with that because now that's going to result in you paying more taxes if it was legit legitimately amount less than the 1099 then you want to show the math you want to say hey here's the amount from the 1099 here's me subtracting the amount because i repaid part of it because they overpaid me and so then the iris can still tie into the amount on the 1099 but see that you then reduced it and hopefully that'll be enough information to to not have them you know trigger a recalculation or anything so if in 2022 you've repaid more than $3,000 of unemployment compensation that you included in gross income in an earlier year you can see repayments in publication 525 for details on how to report the payments so now the issue is well now i had a repayment of unemployment compensation if it was in the current year then i could of course just reduce the repayment in the in the current year but if it was applied to a prior year what do you do do you amend the tax return or is there some way that you can adjust for it in the current year if you fall into that situation again publication 525 find it on the iris website iris.gov iris.gov tip if you received unemployment compensation in 2022 your state may issue an electronic form 1099 g instead of being mailed to you so in other words if you don't get it in the mail but you got unemployment compensation it may be that you just didn't get it because they give it to you in some other format such as a digital format so you want to make sure that you're reporting your unemployment income and that you could find the form to help you to do so because if you don't report it you can't just tell the iris well i didn't get the 1099 because the iris will certainly have gotten the 1099 and that won't that won't fly right they're gonna they're gonna correct your return almost certainly so check your state's unemployment compensation website for more information