By Wendy Clay on February 7, 2012
.jpg.aspx) For the many Americans collecting unemployment benefits such as severance pay or unemployment compensation, this may come as a rude surprise, but for the 2011 tax year those benefits are considered taxable income and one must file and pay federal income taxes for them. In recent years, a 2009 provision allowed the first $2400 of such benefits to go untaxed, but this revision was not renewed by Congress for 2011. So, if you find yourself unexpectedly having to pay taxes, what can you do now?
First, check your individual state’s tax policy on such benefits, because although you will be required to pay federal taxes on your unemployment benefits, depending upon which state you live in, you may not have to pay state taxes for your benefits. Next, once you have calculated how much you owe the IRS, if you find that you don’t have the money to pay the taxes on your unemployment benefits, still file your taxes and contact the IRS to develop a payment plan. Also, to avoid having to make lump sum tax payments in the future on unemployment benefits you can request to have federal taxes withheld from your benefits just as you would for a regular paycheck. If you decide to have taxes withheld from your benefits, be sure to file your federal income taxes each year because you may qualify for a tax refund.
Finally, when filing your taxes, be aware of the many tax breaks you may be eligible for that can help reduce the amount you owe the federal government. For instance, if you were actively searching for a job in 2011, some of the expenses related to your job search may be tax deductible including money spent on stationary, long-distance phone calls, hotel stays, career counseling, etc. Also, if you recently moved to increase your job prospects, the costs associated with the move may also count as deductions. An outline of the IRS deduction guidelines as well as a list of monetary sources considered taxable income can be found at http://www.irs.gov/pub/irs-pdf/p4128.pdf .
If you find yourself paying taxes on unemployment benefits this year, I wish you the best of luck finding employment in 2012, and hope the information above will help as you prepare to file your taxes.
Sources:
Are Unemployment Benefits Taxable? Turbo Tax, 25 Jan. 2012. Web. 30 Jan. 2012
<http://turbotax.intuit.com/support/iq/TurboTax-Topics/Are-Unemployment-Benefits-Taxable-/GEN12619.html>.
Do I Need to File an Tax Return? Turbo Tax, 25 Jan. 2012. Web. 27 Jan. 2012
<http://turbotax.intuit.com/support/iq/TurboTax-Topics/Are-Unemployment-Benefits-Taxable-/GEN12619.html>.
Feldman, Carole All 2011 Unemployment Insurance Benefits Taxable. The Dallas Morning News, 23 Jan.
2012. Web. 30 Jan. 2012 <http://hosted2.ap.org/txdam/0e66aca8dde64ad38350d2e726de6147/Article_2012-01-23-Taxes-Out-of-Work/id-c5012795a55549929bb32df18a8de901>.
Tax Impact of Job Loss. Internal Revenue Service, 2012. Web. 30 Jan. 2012 <http://www.irs.gov/pub/irs-
pdf/p4128.pdf>. |