What You Need to Know about Unemployment Income

Losing your job is a terrifying thought. Yet, it happens to people often, especially during these troubled times. If you were to lose your job, hopefully you would be able to seek out unemployment income. But, what you might not realize is that, in most instances, even this income is considered taxable. After all, as the old saying goes, death and taxes are the two things in this life that are inescapable.  

A Flat Rate  

Since unemployment income is, as far as the IRS is concerned, still income, it is taxed just like regular income in most cases. You are able to choose to have tax withheld from your unemployment compensation benefits to help you avoid a large bill come tax time, but you are not able to choose how much is withheld. Instead, a flat rate of 10% is applied. This is helpful if this taxation rate is less than what your employer was withholding from your pay, but potentially harmful if it’s more.  

Reported Income 

Just as your employer would report your earnings to the IRS, the state employment agency will do the same. It will use Form 1099-G to report what you’ve made via unemployment, as well as any withholdings. Because both you and the IRS get a copy of this form, you are expected to report the income fully and accurately on your tax forms.  

The Right Help  

As you can imagine, getting terminated from your job is very unfortunate. And, many taxpayers are further disheartened to find that they then have to pay taxes on their unemployment income. However, with the right help, you can keep yourself from being financially devastated by such a situation.  

A skilled tax professional can help you to grow your savings and make plans just in case you were to be unemployed. They can also show you ways to stay afloat if the unthinkable happens and to reduce your tax liability, even when your income is coming solely or mostly from unemployment.  

The key is to seek help before unemployment happens. That will put you in the best financial situation possible. However, if it’s too late and you’ve already become unemployed, still do not hesitate to seek professional guidance. After all, even late help is better than no help at all!