Tax Time: Filing Taxes On Unemployment.

Posted: January 12th, 2011 | Author: | Filed under: Taxes | Tags: , , | 1 Comment »

Many people may not realize it, but unemployment benefits ARE taxable. I remember the first time I learned that I was floored. It was in a news article last year, and I remember being surprised that unemployment benefits were taxable. I mean, talk about kicking a guy while he’s down…

But I digress.

Here are some things to be aware of when filing your taxes during a year you received unemployment.

No withholding.

By default, there is no withholding of taxes from your unemployment check. That means you’ll have to come up with the whole amount you in taxes with what you have in savings. Unless you file a Form W-4V while receiving unemployment benefits. The W-4V is a “voluntary Withholding Request” and it will result in 10% of your unemployment check being withheld for federal taxes. State taxes are a different matter, and you’ll have to check with a tax expert on your specific state.

Recognizing unemployment income.

When you file your tax return for the year, you’ll have to “recognize” the income you received from unemployment. You should receive a Form 1099-G in the mail that will show what you received and what was withheld, if anything.

Out-of-work related deductions.

The good news (if one can call it that) about being unemployed is that you may have deductions available to you might not have otherwise.

Expenses related to job searching (even if you didn’t get the job):

  • These include money spent on travel (airfare, mileage, meals) and resume preparation.
  • Deductions have to be more than 2% of your adjusted gross income (AGI) however, and you should be able to provide receipts that add up to your expenses.
  • Are only valid when the search is for a job in your current/most recent trade or business. If you have been out of work for an extended period of time then it may be considered a new trade or business.
Earned Income Tax Credit (EITC).

The EITC is meant for those who work part of the year and make a low to moderate income. If you worked for at least part of the year, then you may be able eligible for the Earned Income Tax Credit. The EITC could reduce your tax bill or even mean a refund.

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