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Posted by Tiffany Gaskin

Things to Know About Unemployment Taxes

Things to Know About Unemployment Taxes

The emergence of the pandemic caused unemployment rates to soar exactly like it was in the time of the Great Depression. To salvage the situation, the U.S. lawmakers passed the CARES Act bill.

This bill facilitated the disbursement of two trillion dollars to cushion the effects of the pandemic. This boosted unemployment benefits by as much as $600 per week. This news was made to include self-employed workers, independent contractors, freelancers or individuals who initially would not have qualified for unemployment benefits had it not been for the pandemic.

This act helped to cushion the effects of the pandemic significantly. When this initial sum fizzled out in July 2020, an additional $300 weekly unemployment income was disbursed in August and stayed until December and then to March 2021. The Pandemic Emergency Unemployment compensation and PUA programs were also extended into 2021, although they were all supposed to end in 2020.

While it is good that the unemployment situation has been somewhat contained by aiding the average unemployed worker, this money being disbursed should not be considered 'free money’. 

It is taxable. Taxing, in this case, does not extend to Medicare or Social Security taxes but involves some state and federal taxes depending on your area of residence.

Therefore, every American receiving these unemployment benefits should do due diligence to determine the taxes on these funds so that they will not be in for a surprise at the end of the tax year when they discover how much they owe in taxes. 

Some states exempt their citizens from unemployment taxes. These are the states of Pennsylvania, California, New Jersey, Texas, Virginia, South Dakota, Washington, Alaska, Montana, Nevada, Wyoming and Florida. If you reside in these states, then your unemployment benefits are not taxed.

Tax payment deductions: Why it is essential and how you should go about it.

By law, you are not mandated to have your taxes deducted from your unemployment check at the point of disbursement. But, this is an excellent strategy to practice if you don't want to be caught unawares at the end of the tax year. This is crucial, especially if you have earned some income within the year already and expect to gain employment soon. Suppose you do not settle the issue of taxes now. In that case, when you regain employment, you could be allocated higher tax burdens and be exempted from benefiting from credits that you otherwise would have benefited from, which would have aided in the offsetting of your tax bills.

Making these deductions might not sound like an easy proposition because every dollar contained in that check might be spoken for, but better safe than sorry, right? And this helps debunk the ‘free money mindset’ that can be limiting.

To apply for these tax deductions on your unemployment check, you would need to fill out a W-4V form. And, with regards to your state of residence, you could fill out this form online through the unemployment benefits website. When you apply for these deductions, you can have a fixed 10% deduction made from each of your unemployment checks, as directed by the Labor Department.

If you have been a prior recipient of the unemployment benefits, then you could request for this W-4V from the state's unemployment office to start making tax deductions on your checks or opt-out at any point in time.

Another way to prepare for tax payments on your unemployment checks is to deliberately put aside a certain amount of money regularly, or at what time intervals you want, towards settling your tax bills. You could have a separate account for this or save the money through any other means you prefer. Only ensure that you are neither caught unawares nor increasing your tax burden when you regain employment.

If you don't want to go the route of regular deductions on your checks, you could opt for a quarterly payment of taxes to the IRS to reduce your tax bill by the end of the year.


Unemployment benefits checks were designed to help, especially during the pandemic, and at other times. But, bear in mind that these benefits are taxable, and you have to do due diligence to find out what these taxes are to avoid accumulating an unpleasant debt in taxes.



Tiffany Gaskin
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