After the stress of losing your job and finding out how much unemployment control would cover, taxes are likely not good for too many people.
However, unemployment compensation is treated as taxable income by both the IRS and most states. (Exceptions are Alabama, Alaska, California, Florida, Montana, Nevada, New Hampshire, New Jersey, Pennsylvania, South Dakota, Tennessee, Texas, Virginia, Washington, and Wyoming.)
“Tax withholding of unemployment benefits is voluntary at both the federal and state levels,” said Julie Sforza-Smith, program manager for The Tax Institute of H&R Block.
In this case, the income taxes due will be assessed at the time of the tax.
So some people may have a “negative surprise” when they do their taxes this year, said Elaine Maag, chief associate researcher at the Urban-Brookings Fiscal Policy Center.
This may be especially true for everyone who ended up earning more unemployment than they did while working, thanks to the $ 600 federal weekly supplement to unemployment benefits that was in effect from April to July. This was paid in addition to the state unemployment benefit, which averages $ 380 a week. In these cases, especially if someone had other sources of household income, such as a spouse’s salary, their total tax liability may be higher than normal.
“It will be a big surprise for a lot of people,” Maag said.
But the net effect may not mean they have to write a check to the IRS when they file their tax return. Instead, they may see a smaller repayment than they expected, as their increased income may reduce their eligibility for large tax credits, such as the refundable income tax credit.
Last year, 77% of applicants received a refund from the IRS, according to return data processed in late November. And the average refund paid was over $ 2,500.