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Do I Have to Pay Taxes On Unemployment Compensation in Arizona?

Like most people throughout the country, our Arizona residents were hopeful that 2021 would bring relief from an unprecedented year that disrupted nearly every part of our lives, including dealing a major blow to employees who could no longer work because of the shutdowns, or who were laid off or even let go entirely because of their employers’ inability to create revenue.

Unfortunately, the turn of the calendar has not made everyone magically whole again. With an unemployment rate near 8% throughout the state, many of our residents are still out of work and continue to count on employment benefits to pay their bills.

What they may not know is, all unemployment benefits are considered gross income for federal income tax purposes, which means the IRS will want their share of the taxable income — when it was not withheld by request — when the checks or direct deposits were sent to the recipients.

Are All Types of Unemployment Benefits Taxable?

Simply put, yes.

All types of unemployment benefits are taxable, including those paid under the:

The Arizona Department of Economic Security reports these benefits to the Internal Revenue Service for the calendar year in which the benefits were paid.

As tens of thousands of our Arizona residents faced job loss and unemployment as a result of the COVID-19 health crisis, the ripple effect will continue through the upcoming tax season as it brings unexpected challenges in the form of owed taxes.

How Does Unemployment Taxation Affect My Finances?

The taxation of unemployment benefits can become an overwhelming reality for those who cannot afford to owe taxes – or any unexpected expense – when they go to file their taxes.

That includes those who may have to pay outright for the adjustment and those who will forego a tax refund they usually rely on to help them get out of debt from the previous year.

For individuals continuing to experience financial stress, owing taxes on April 15, 2021, will not only come as a surprise to many but may also significantly increase their debt and hinder their ability to see a way out of it any time soon.

If you were already experiencing financial hardship, and only expect the taxable unemployment income you received in 2020 to increase that adversity, our bankruptcy attorney in Tucson, Eric Ollason, will explain the financial relief options that may apply to your unique circumstances.

If you are already seeing warning signs that overcoming your current financial position seems impossible, you do not have to wait until your creditors begin making harassing phone calls and threatening letters to determine the right time to pursue your bankruptcy options.

To discover whether you are eligible to file for bankruptcy in Arizona, contact our experienced bankruptcy attorney in Pima County, Eric Ollason, to learn more about your legal rights and options to start fresh by calling (520) 791-2707 today to schedule a free consultation.

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