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Beware these 5 terrible tax surprises

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Unemployment benefits are taxed
Unemployment benefits are taxed | A J James/Getty Images

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?

  1. 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.
  2. 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.

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