Many Americans who find themselves unemployed are surprised on April 15th when they owe taxes on unemployment benefits. You can be prepared for these taxes so that you are not caught off guard during the tax season.
Since most unemployment insurance is withheld from your check while you're employed, this money is not taxable. However, anything over the amount you paid in premiums is taxable. There are other things to consider such as private unemployment insurance, union unemployment benefits and state employees benefits. These categories may have different tax laws applicable to them depending on the source of the benefits.
Have Taxes Withheld
You can have taxes withheld from your weekly checks and automatically sent to the IRS. Pensions and partial earnings would be subtracted before the final amount is taxed. These unemployment taxes make up approximately 15 percent of your total unemployment benefits. You can set this up by completing a W-4 form and mailing it to the IRS.
Make Estimated Payments
You can make estimated payments every quarter to the IRS that will meet your tax requirements. Most people choose to do this instead of withholding taxes because weekly unemployment checks are minimal and the money is needed for family expenses.
In 2009, laws were passed which made the first $2,400 of unemployment, non-taxable. This was a move to give relief to the unemployed. Laws like this change from year to year. Keep up with these changes so that you will know what to expect when you file your taxes.