Submitted by guest author Winnie Sun, financial adviser, founding partner of Sun Group Wealth Partners, and Intuit customer.
The Coronavirus pandemic has caused unimaginable damage to the American workplace. The fear it has created in employees and employers worldwide has many of us worried about how we are going to be able to support ourselves and our loved ones. So far, more than 44 million Americans have filed for unemployment and that number is expected to increase as the pandemic goes on.
What can we expect from unemployment, and how will that affect your taxes?
First, a bit of good news: US stocks moved higher recently after employment data showed the economy actually added jobs in May! Some 2.5 million people are back to work already, according to the U.S. Department of Labor. The unemployment rate also unexpectedly fell, to 13%, compared with last month’s 14.7%, the highest since 1948.
Still, the employment picture is far from rosy and many people are likely to remain unemployed for some time to come. Remember that the economy had lost 22.1 million jobs in March and April together as most states ordered all but essential businesses to shut down in an attempt to slow the spread of the often-deadly virus. Many out-of-work Americans will continue to receive enhanced unemployment benefits if they cannot find a job.
Under federal legislation in response to the COVID-19 pandemic, widely known as the CARES Act, unemployment benefits were extended to those not normally covered, including independent contractors, gig workers and the self-employed.
It also added additional weekly unemployment benefits to an eligible worker’s unemployment check. If they are still jobless after that period, eligible workers can get up to 13 more weeks of unemployment pay, minus the temporary additional stipend.
In California, for example, the volume of claims has overwhelmed the computer and telephone systems of the state Employment Development Department, which process claims. Elsewhere, millions of newly jobless across the country have been stymied from seeking benefits because of application backlogs, technical glitches and confusing guidelines.
If you’re a Californian needing to file for unemployment, here are some things to be aware of: You may be eligible to collect unemployment payments if you have lost your job or had your work hours reduced because of the coronavirus pandemic. The easiest, quickest way to file is online.
Some COVID-related temporary easing of some rules make it easier to get unemployment payments. For example, the usual seven-day waiting period is waived for claims filed from Jan.19. After you submit your first two-week continued certification, you will be paid for the first week of your claim. Nor are you required to look for work each week to be eligible for benefits.
For an overview of COVID-19 benefit programs and tips for navigating the California EDD website, view Assistance Programs for Workers during COVID-19 (YouTube). For the latest Unemployment Insurance (UI) claim data available, visit the Newsroom. A step-by-step instructions lets you know what to expect during your claim period. There is also a UI Benefit Calculator to estimate your weekly benefit amount.
You don’t necessarily have to be laid off to qualify for unemployment. If you must stay home from work because your kids’ school has been shut down due to the pandemic, for example, you may qualify for payments. Check out this Frequently Asked Questions part of the state’s website: https://www.edd.ca.gov/about edd/coronavirus-2019/faqs.htm. Or call: 1-866-444-3272.
Health care coverage while you’re not working is another serious matter. Some employers who expect to call back workers once they are allowed to reopen are allowing furloughed employees to continue on their health insurance plans, although most require the workers to continue to pay their share of the premiums.
If your health insurance coverage was dropped when you were laid off, COBRA may be your best, though most expensive, bet. Essentially it allows you to stay on your former employer’s group health care plan for a period of time–but you likely will pay the entire cost of the premium yourself. Find out more at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Other-Insurance-Protections/cobra_qna
Now is a good time to consider meeting with your financial advisor for help navigating scores of tricky subjects that can cost you big time in the long run if you are not careful. If you are drawing unemployment payments, for example, know that they are taxable by the federal government and by some states. Your advisor can help you decide whether to choose to have taxes withheld and avoid a potentially nasty surprise at income tax time.
He or she can also advise you on whether COBRA or a marketplace health insurance option is best for you. For many budget-conscious people, the best option might be buying health insurance through the Affordable Care Act, commonly known as Obamacare. You may get a break on premiums because you have lost your job. Healthcare.gov can provide you with a comprehensive list of options, including Medicaid if you are poor enough to qualify for it.
If you have a 401(k) or similar retirement account and are younger than 59 and a half, you may be able to borrow up to $100,000 from it without the usual penalty, which was waived under the CARES Act. You still would owe taxes on the amount you borrow, however.
If you have federal student loans, know that the CARES Act also suspended required payments for six months for certain federal student loans.
Thinking about taking early retirement and tapping into Social Security before your full retirement age? Run that by your advisor for sure! Your Social Security benefit could be up to 30% less if you take it early. You will want to weigh carefully when is the best time for you to start drawing Social Security.
And if you don’t already have a budget, now is the time to make one. Your financial advisor can help with this as well as offer advice on navigating mortgage payments and other financial obligations during this difficult time.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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