Temporarily Furloughed? What Does That Mean for Your Taxes?
For those who were temporarily furloughed during the pandemic, and are now back to work, you probably have questions.
If you were furloughed and your paycheck continued during your furlough, lucky you! Your finances and taxes didn’t change much. But, if you had a gap in pay, with a corresponding gap in taxes withheld, what does that mean for your overall tax picture for 2020?
Received Unemployment Benefits?
If you received unemployment benefits during the period you weren’t working, those benefits are taxable. But, income taxes weren’t withheld unless you made a special request. As a result, the taxes on those benefits:
- are due when you file your tax return in the spring, or
- will reduce the amount of your tax refund.
Speaking of refunds, the amount of your refund depends on how much was taken out of your paycheck for income taxes compared to the actual taxes on your tax return. If you had more taken out than the actual taxes, you are due a refund of the difference. But during the weeks or months you weren’t receiving a paycheck, nothing was taken out. That will result in a lower refund at 2020 year end.
The Silver Lining of a Temporary Furlough
There is one ray of sunshine in all of this. Our system of income taxes is graduated, with higher rates applying to higher income. If your income dropped for 2020, your tax bracket may have dropped as well, and that could increase your refund a bit. And now that your income is lower, that could make you eligible for tax credits that didn’t apply to you before, such as the Earned Income Tax Credit. Maybe a temporary furlough isn’t all bad!
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The information in this article for general educational purposes only and not intended to provide specific advice or recommendations. Please discuss your particular circumstances with an appropriate professional before taking action.