Beware these 5 terrible tax surprises
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 percent 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.