The Lost Wages Assistance Program (LWA) provides additional payments of $300 or more to people who have lost their jobs or had their hours reduced because of the COVID-19 pandemic. Affected individuals still need to file an unemployment claim and receive approval to be eligible for additional funds under the LWA.
The economy is showing signs of slowly improving — the national unemployment rate was just over 10% in July 2020, a reduction over the previous two months — but COVID-19 has had a significant impact on employees. Americans are still facing alarming unemployment and underemployment rates, though, and that has created the urgent need for programs like the LWA.
All of this combined with the potential tax implications of additional unemployment benefits can make a recipient’s head spin with confusion. Speaking with an experienced tax advisor may be in your best interest, but this quick guide may shed a little light on some of the important highlights.
What Is the LWa Program?
The LWA is a supplemental payment program set up under the Federal Emergency Management Agency (FEMA). President Trump authorized FEMA to use disaster relief funds to help individuals who lost wages during the pandemic, with FEMA providing up to $44 billion dollars directly to states to distribute through their unemployment benefits programs.
This program was created to provide an additional safety net for Americans impacted by the coronavirus. Those who lost their jobs or had their hours or salary reduced apply for unemployment benefits and could receive an additional sum through LWA. This could help people keep roofs over their heads and food on their tables.
Who Qualifies for the Program?
To qualify for benefits under the LWA, individuals must provide proof that they have lost their job — permanently or temporarily — due to the economic downturn caused by COVID-19. If an individual can show this information, he or she could be eligible for additional unemployment benefits of up to $300 per week.
If you are an individual applying for unemployment, there are no additional steps you need to take to receive additional benefits under the LWA. Your state will automatically determine your eligibility and provide benefits accordingly.
For a state to become eligible for this program, its unemployment program must cover $100 dollars and FEMA will cover $300. This brings the total benefit for eligible participants to $400 per week. South Dakota is the only state not participating in the LWA program. There are 44 states currently approved for the additional benefits:
- New Hampshire
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
Four states — Delaware, Kansas, Nevada, and New Jersey — are currently awaiting approval of the application to join the LWA, and New Jersey. D.C., Nebraska, and Puerto Rico have not decided if they will participate. LWA benefits are currently being distributed in the following states:
To be clear, only claimants whose financial losses are related to COVID-19 are eligible for this benefit. Those who receive less than $100 in weekly unemployment benefits are not eligible, and those who do receive the benefit may only receive it for a few weeks. The program is set to expire at the end of 2020, or earlier if funds run out.
The LWA provides much needed economic assistance to individuals who have seen their income decrease or completely evaporate, but recipients need to understand the tax implications. This program provides those in need with financial help, but these are taxable benefits. You will need to pay federal income tax on the LWA unemployment benefits you receive.
Other Assistance Programs
Additional unemployment and economic assistance exists to help Americans get through the pandemic. These include programs to help both individuals and businesses weather the drastic economic downturn we currently face. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated the funds for the programs below.
- Economic Injury Disaster Loan (EIDL) is a loan provided to businesses to help cover revenue losses during the pandemic. The first $1,000 is considered a grant and does not need to be repaid.
- The Paycheck Protection Program (PPP) is a loan for small businesses to keep employees on payroll. Funds must be used for eligible expenses.
- The Families First Coronavirus Response Act (FFCRA) requires certain employers to provide additional leave for employees impacted by COVID-19. Those who have been diagnosed with COVID-19 or are caring for family members who tested positive may be entitled to additional leave under it.
Tax Implications Abound
All these economic relief programs provide assistance, but they are also ripe for tax implications for both businesses and individuals. Additional unemployment payments must be considered alongside the initial economic stimulus payments that were made to every individual earning less than $75,000.
Taxes create uncertainty and confusion for Americans in normal times. The economic losses currently happening all around us and economic stimulus actions taken by the government only serve to further muddy the waters.
Get Tax Help Today
Get help understanding how today’s economic climate could impact your individual taxes and the actions you can take to minimize your tax liability. Contact Silver Tax Group today to discuss your Lost Wages Assistance program questions or to speak with an expert about all of your tax-related questions and concerns.