Yes, it's true. Under tax law, unemployment is considered wage income, and the IRS wants a cut of it.
Now that you're over the shock and anger, what can you do? When you apply for unemployment benefits, consider having federal income taxes withheld. This process is similar to regular payroll withholding. In this case, the form you fill out is the federal W-4V, Voluntary Withholding Request, or a similar IRS-acceptable document that the paying agency has created. This way, taxes will be withheld at the rate of 10% of each unemployment payment.
If you feel like you just can't surrender a chunk of each unemployment check to withholding, you should look into paying estimated taxes. This will help you avoid owing a large lump-sum tax bill when you file.
You survived the divorce. Now you have the IRS to deal with if you're getting alimony.
Ending a marriage is never a happy event. But at least you got a good settlement, and those regular checks from your (insert your own description here) ex-spouse are completely warranted. They also are completely taxable.
Alimony, separate maintenance payments and similar recompense from your former spouse are taxable to you in the year you receive them. Child support money, however, is not taxable. If your divorce decree calls for alimony and child support and specifies amounts for each, you owe the IRS only for the alimony payments. To avoid a big bill in April, make your IRS payments on alimony and other untaxed income via estimated tax filings.
The 1 good tax surprise here is for the ex who's paying spousal support. Those check amounts are tax-deductible.
"Forgive but collect" is the IRS motto when it comes to canceled debt.
Getting your credit card bill cut from $8,000 to $4,000 certainly helped your personal bottom line. But it also could be a boon to the U.S. Treasury. Why? The tax law generally considers the amount you get any creditor to write off as earned, and therefore taxable, income to you. Expect the accommodating debtholder to send you (and the IRS) a Form 1099-C or similar statement detailing your discharge of indebtedness as miscellaneous income.
Not every debt settlement, however, has to pad Uncle Sam's pocket. Under the Mortgage Debt Relief Act that became law in 2007, some homeowners who are granted forgiveness of mortgage debt won't have to pay taxes on that amount.
There are some restrictions. The forgiven debt amount is limited to up to $2 million, or $1 million for a married person filing a separate tax return. The tax relief applies only to mortgage debt discharged by a lender between 2007 and 2014. And the forgiven loan must have been taken out to buy or build a primary residence, not a 2nd home or vacation home.
This tax break also is temporary. It was extended through 2016 as part of the Protecting Americans from Tax Hikes, or PATH, Act of 2015. However, if Congress doesn't extend mortgage debt relief beyond this year, canceled home loan debt will return to the taxable income category.
Think you're pretty lucky because you won $1,000 in a radio contest? Uncle Sam is even luckier. He's due part of your winnings.
Prize winnings are included in the long list of "other" income that tax law says is taxable. And it's not just limited to cash awards. You have to pay taxes on the fair market value of any property you win.
Be careful when reporting the amount of a noncash prize. In most cases, companies and groups that award prizes, cash and property will send you a 1099 form declaring the value of what you won. If your tax return reports substantially less than what the giver claims, your underreporting could mean a long, hard look from an IRS auditor.
And don't forget about gambling proceeds. They're taxable, too, but at least you get the chance to reduce the tax bite here by subtracting any betting losses from your winnings.
Some Social Security benefits
You spent the past 40 years fattening the U.S. Treasury, thanks to those dang Social Security taxes that came out of every paycheck. Now you're retiring, and it's time to get your tax money back, free and clear, right?
Well, maybe. Maybe not.
Generally, if Social Security benefits are your only income, your benefits are not taxable. But if you collect Social Security plus other income, as much as 85% of those government checks could be subject to tax. To figure out just how much in taxes your Social Security might cost you, you'll have to do some calculating using the worksheet found in your tax Form 1040 or 1040A.
If you discover that you will owe taxes on some of your Social Security benefits, there are 2 ways to deal with them. You can make estimated tax payments on the government check amounts. Or you can have federal income tax withheld from your benefits by completing Form W-4V, Voluntary Withholding Request, and filing it with the Social Security Administration.