Tax Consequences of Unemployment by Equifax Personal Finance Blog Tax Expert Eva Rosenberg
If you are among the 10 percent of the population who is unemployed, you may qualify to apply for benefits.
Unemployment insurance benefits provide some money, but rarely enough to cover your rent or mortgage. And there’s a catch. Since the stipend is so small, people don’t realize unemployment insurance benefits are subject to income taxes.
Unemployment income is taxed for IRS purposes—at your highest tax rate, which could be anywhere from 0 percent to 35 percent, depending on your other income during the same year. Be sure to withhold federal taxes for at least 10 to 20 percent, depending on your other income for the year.
The state of California doesn’t tax unemployment income, so it shocked me to learn most other states do assess taxes on unemployment benefits. If your state is one that does, make sure you have enough taxes withheld to cover that liability.
Doing the responsible thing, having your taxes withheld, doesn’t leave much money to pay your bills. You will undoubtedly need to draw money from somewhere else.
Savings get depleted quickly—and there’s no tax consequence to drawing down your savings account. When you face early withdrawal penalties, you’re entitled to deduct those as adjustments to income on page 1 of your Form 1040.
Another smart tax move is to sell appreciated stocks. In 2010, there is a 0 percent or 15 percent capital gains rate for most stock profits.
What Are the Three Biggest Financial Mistakes Unemployed People Make? Read the full blog to find out: http://tax.equifax.com/2010/09/tax-consequences-of-unemployment.html