Whether you are still working from home due to Covid-19 workplace restrictions, or you are collecting unemployment benefits due to a job loss, you should be aware of tax-related issues that you may deal with next year when you file your 2020 income tax returns.

Working from home

Many workplaces are still closed due to the pandemic, with employees being asked to work from home. If you’re an employee who works at home and communicates with your employer mainly by telephone, videoconferencing, email, etc. — you may be incurring expenses related to the situation, such as increased utility bills, costs for faster internet service and the purchase of office furniture.

Unfortunately, those expenses are no longer deductible on your federal income tax returns. The popular “home office deduction” was one of many miscellaneous itemized deductions that were temporarily suspended by the Tax Cuts and Jobs Act.

The suspension, which lasts through the 2025 tax year, applies only to W2 employees who work from home. Self-employed individuals who work from home offices are still eligible to claim the home office deduction if they satisfy strict rules.

Unemployment benefits

Millions of Americans have lost jobs due to Covid-19 and are collecting unemployment benefits. Some recipients don’t know that these benefits are taxable and must be reported on federal income tax returns for the tax year they were received. Taxable benefits include the special unemployment compensation – the additional $600 per week from the federal government – authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

To avoid a surprise tax bill when filing a 2020 income tax return next year, unemployment recipients can have taxes withheld from their benefits now. Under federal law, you can opt to have 10% withheld from your benefits to cover part or all the tax liability. To do this, complete Form W4-V, Voluntary Withholding Request, and give it to the agency paying the benefits. (Don’t send it to the IRS.)

Questions?

Please contact us if you have any questions about whether you qualify for the home office deduction, or how much of these expenses you can deduct. We can also answer questions about the taxation of unemployment benefits and other tax issues related to Covid-19.