Kokua Line: Some PUA claimants seem surprised to face state and federal income taxes

Question: With a vast number of people laid off and receiving benefits due to the pandemic, I’m wondering how that’s going to affect everybody’s tax return.

Answer: If you are asking whether weekly compensation for the unemployed is treated as taxable income, the answer is yes, and that applies to both standard state Unemployment Insurance and to Pandemic Unemployment Assistance, the federally funded benefit for the self-employed and others who don’t qualify for standard UI.

We’ve received numerous questions about this as tax season looms, and some readers seem confused. Here’s a related question:

Q: Since the stimulus isn’t taxed, I’m OK with PUA, right?

A: No, you seem to mistakenly believe that Pandemic Unemployment Assistance is not treated as taxable income; it is. The direct payment commonly referred to as “the stimulus” is not PUA; it’s the EIP — Economic Impact Payment. The EIP, aka stimulus, is not taxable income; it is a tax credit paid in advance.

So, to repeat: Both UI and PUA are treated as taxable income. UI claimants have the option of withholding federal and state income taxes from the benefits they receive. PUA claimants do not have that option and should have been setting aside money to pay the taxes that will be due, depending on their individual circumstances. The same would be true for UI claimants who did not exercise the withholding option.

Claimants will receive a 1099-G tax form that includes the value of benefits paid and other information “to meet federal, state and personal income tax needs for the tax year,” according to the state Department of Labor and Industrial Relations’ website. The forms will be mailed out around Jan. 27, it says.

Q: Regarding the second stimulus, how will I know whether I am supposed to get it by direct deposit or by check? I know I am eligible.

A: Use the Get My Payment tool at irs.gov/coronavirus/get-my- payment. Information is updated once a day.

Q: I received the first stimulus check direct-­deposited in my bank account. However, the bank account was closed a couple of months ago. How can I update to have my current bank’s information?

A: You can’t, according to the IRS, which says you and others in the same boat may receive a payment by mail, or absent that, may claim the credit on your federal tax return.

This is a common question. The IRS updated FAQs on irs.gov last week to address it:

Q: How will the IRS know where to send my payment? What if I changed bank accounts?

A: “The IRS will use the data already in our systems to send the new payments. Taxpayers with direct deposit information on file will receive the payment that way. For those without current direct deposit information on file, they will receive the payment as a check or debit card in the mail. For those eligible but who don’t receive the payment for any reason, it can be claimed by filing a 2020 tax return in 2021. Remember, the Economic Impact Payments are an advance payment of what will be called the Recovery Rebate Credit on the 2020 Form 1040 or Form 1040-SR.”

Q: How many people have gotten the COVID-19 vaccine already in Hawaii?

A: “As of December 31, approximately 25,000 doses of vaccine have been administered to essential hospital workers and first responders throughout the state,” according to a status report from the state Department of Health.

Mahalo

While driving on the H-1 exit ramp to Kapiolani Boulevard on Friday, I came upon a police car, blue lights flashing, at the bottom of the ramp. Slowing down to see what the problem was, I realized that the Honolulu Police Department vehicle had slowed traffic to shield a homeless person pushing a fully laden shopping cart at the end of the ramp. Bless HPD and the thoughtful officer! It was a good way for me to start this new year. — Mahalo, a kupuna wahine

Write to Kokua Line at Honolulu Star-Advertiser, 7 Waterfront Plaza, Suite 210, 500 Ala Moana Blvd., Honolulu 96813; call 529-4773; fax 529-4750; or email kokualine@staradvertiser.com.