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Unemployment benefits are taxed
Under tax law, unemployment is considered wage income, and the IRS wants a cut.
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, you fill out Form 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 percent of each unemployment payment.
- If you can't afford to surrender a chunk of each unemployment check to withholding, look into payingestimated taxes. This will help you avoid owing a large lump-sum tax bill when you file.