No one likes to fill out tax forms, but it is something that every American will have to do in just a few months time. We all know that the money we made from working at our places of employment is something that we will be paying taxes on. What if you were getting unemployment insurance benefits? Unfortunately, those are taxable, too.
When you go to fill out your federal income tax forms, and your state income tax forms, you probably know that the money you earned while working will be included somewhere in those important pieces of paper. This isn’t news. I think everyone understands that an income tax form will ask about your income, and realizes that “income” refers to the money you earned while you were working for whomever your employer happens to be.
What if you were unemployed? This is where things get a little bit confusing. If you truly were completely and entirely unemployed, and didn’t earn any money at all, then there wouldn’t be anything to report. That part is easy. The questions start when you try to factor in the money that you, or your spouse, received from unemployment insurance benefits.
Believe it or not, unemployment insurance benefits are taxable. There is a common misconception that the money a person gets from unemployment benefits is somehow “tax free”.
I think that this could be because people don’t tend to think of the money that comes from unemployment insurance benefits as “income”. Technically, it still counts as income, even though it didn’t come from an employer.
Another reason why people think these benefits are tax free is because they used to be. In 2009, the first $2,400 that a person received from unemployment insurance benefits were tax free. Congress did not renew that provision when it expired. After that, all unemployment benefits became taxable, (even the first $2,400).
I am someone who has received unemployment insurance benefits in the past year. There is a specific part of the continued claim forms that can be checked off to let the government know that you would like to have the taxes on your benefits withheld. If you do that, then the taxes are automatically taken out of each and every unemployment benefit payment.
If you didn’t see that little box to check, then your benefits did not have the taxes automatically deducted from them. You still have to pay those taxes, though, even if they are not from what you would typically think of as “income”.
Image by John-Morgan on Flickr