Unemployment benefits can help cushion the blow when you lose your job.
Thats because you could owe taxes on your jobless benefits.
How Are Unemployment Benefits Taxed?
Lets back up: Is unemployment taxable?
Unfortunately, the answer is yes and that can seem like Uncle Sam kicking you when youre already down.
If you received unemployment compensation in the past, that may come as a surprise.
But that relief measure applied only to 2020.
Still, many people are surprised to learn that they have to pay taxes on their jobless benefits.
A Jackson Hewitt survey found that 39% of adults werent aware that unemployment is taxable.
Heres a breakdown of how taxes on unemployment benefits work.
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But you wouldnt owe payroll taxes, i.e.,Social SecurityandMedicaretaxes, on your benefits.
State Income Taxes
At the state level, it looks a little different.
How Do I Pay Taxes on My Unemployment?
There are two basic ways to pay federal taxes on your unemployment.
What if I Havent Had Taxes Withheld?
Theres no need to panic if you havent had taxes withheld on your unemployment compensation.
A lot of people are in that situation.
The worst-case scenario: You owe money on Tax Day andcant afford the bill.
Fees aside, 0.5% per month works out to 6% per year.
You may also qualify for certain tax credits that will offset the amount you owe.
Just confirm you file a tax return next year, even if you cant afford to pay.
The bottom line: You will pay taxes on your unemployment compensation.
Pay them upfront either automatically or quarterly if you could.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
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