Pay Taxes While You’re Unemployed

If you’ve been laid off, you still need to pay taxes! You indeed must pay taxes when you’re unemployed for no fault of your own.

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Though you’re eligible for unemployment benefits, it is treated as income, and you are taxed for that income. Both the federal and the state government have laid out various tax policies that you need to look out for when filling the forms.

Unemployment Benefits

Though you’re unemployed, you’re subjected to certain benefits from the state. The U.S. Department of Labour administers the Federal-State Unemployment Insurance Program.
The states maintain other insurance programs – controlled by the Federal – where you receive a certain amount every week based on the state you reside in and the type of your unemployment.
You will also be entitled to Supplemental Unemployment Benefits or SUB. There are different SUB funds and two types of SUB’s – extended layoff and furlough – which you can benefit from.

Who is Eligible for Unemployment Benefits?

Each state has various policies when it comes to the unemployment insurance program. However, you’re eligible if:

  • You’re terminated without any fault of yours.
  • You fulfill the state and wage requirements and other state policies.

Unemployment Benefits are Taxed

These unemployment funds or benefits from the Government is taxable as it is considered as income. And any income is taxable.

You can withhold your federal income taxes or choose to file periodically. If you’re unable to pay these taxes without wanting to withhold the federal tax, it might cost you a lot in the form of penalties when you get employed.

According to the IRS, your unemployment benefit or fund includes the insurance benefits outlined by the state, the amount specified in the federal and state compensation unemployment laws and other benefits by the state.

Not all states demand taxes on the benefits. Residents or employees of the states Washington, Alaska, Nevada, Tennessee, Florida, Texas, New Hampshire, South Dakota, and Wyoming need not pay taxes for the unemployment benefits.

If you’re residing in any other apart from these states, you must pay the taxes. If you live in cities such as Detroit or Cincinnati, you need to pay municipal taxes.
Some of the cities have a separate policy for unemployment benefits that you need to abide by.

Documents needed to File Taxes when Unemployed.

You need to fill in a couple of documents to file tax for the unemployment benefits. Below are the primary forms to be filled.

You can deduce costs from the tax forms for the travel costs if you’ve traveled to attend a job interview and other costs. It can be subtracted only if you hunt for a job of your domain.

  • W-2 – This form will show your wages and other unemployment benefits.
  • 1099-G – Issued by the State Labour Department, the amount of the withheld federal tax and the unemployment funds are showed
  • 1099 – You need to gather this form if you have earned income through a side hustle.
  • 1040 – If you have received a SUB from a private fund, the SUB fund will send you this form to fill out.

You need to fill the Schedule C if you’ve earned through side jobs for a while without it being a complete business.

Main Things to Know before Filing for Unemployment Benefits

Here are a bunch of things to keep in mind and do before you claim your unemployment benefits.

  • Keep all Your Documents Ready
  • It’s essential to keep all the necessary documents and forms ready to process your claim faster. Go through the official website and figure out the forms needed.
    Make a list and document the forms. You might need your driver’s license or your social security number to file the income tax. Your pension records should be with you if you’re qualified for that.

  • You can Claim Unemployment Benefits if you Have a Side Job
  • If you’re unemployed and yet have a job, you can claim your benefit. It can be a side job with weekly pay or part-time.
    You should also report your total income earned every week to collect the funds. Check for the policies of the state you reside in and file for the benefit.

  • File for the State or the City you Have Worked
  • If you’re residing in one state and working in another, you need to file for the unemployment benefits for the state you work in.
    You can also claim your benefit if you have worked in more than one state according to the policies of those particular states. Fill the forms accurately to process the claim without dispute.

  • Estimate the Amount of Your Unemployment Benefit
  • Though this is not necessary, you can get a rough estimation of your unemployment benefit by calculating to get an idea of your weekly wage.
    You can check the formulae and calculate using the unemployment benefits determination calculator. You get to know an approximate value, if not the exact one.

  • Plan Your Budget and Check for other Special Programs
  • Once you’ve filed your claim, it’s time to plan your budget and check out some special programs offering funds the same way.
    If you’re qualified for the programs, you can apply for the programs and get your claim. Plan your monthly wages and look for ways to reduce them till you get through the unemployment phase.

In Conclusion

If you’re terminated from your job due to administrative causes, you are eligible for unemployment benefits. Based on the state and the city policies, you get your funds.
Once you claim your benefit, you need to pay federal tax income as these benefits are regarded as income. Depending on the state you’re working in and other factors, you should claim your funds and file your taxes.

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