After the stress of losing your job and finding out how much The unemployment check would cover, chances are good taxes weren’t a priority for many people.
However, unemployment insurance 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.)
“Withholding tax on unemployment insurance is voluntary at both the federal and state levels,” said Julie Sforza-Smith, program manager at The Tax Institute of H&R Block.
In that case, the income tax due will be charged at the time of tax.
Therefore, some people may have a “negative surprise” when collecting their taxes this year, said Elaine Maag, associate principal researcher at Urban-Brookings Tax Policy Center.
This may be especially true for those who ended up earning more from unemployment than while working, thanks to the federal $ 600 a week unemployment benefit that ran from April to July. This was paid on top of state unemployment insurance, which costs an average of $ 380 a week. In such cases, especially if someone has other sources of family income, such as the spouse’s salary, your total tax obligations may be higher than normal.
“It will be a big surprise for many people,” said Maag.
But the net effect may not mean that they have to write a check to the IRS when filing their income tax return. Instead, they may only see a lower than expected refund, because their higher income may reduce their eligibility for large tax credits, such as the refundable Earned Income Tax Credit.
Last year, 77% of filers were reimbursed by the IRS, according to returns data processed through the end of November. And the average refund paid was over $ 2,500.