More than 22 million Americans have filed for unemployment benefits in the past four weeks but they are not thinking about how the benefits are taxed.
Here's some helpful information for you to know according to this website:
Tax Withholding Strategies
You can avoid a surprise bill at tax time if you choose to have income taxes with held from your unemployment benefits, like you would from your salary. You can ask to have taxes withheld from your payments when you apply for benefits, or you can file IRS Form W-4V, Voluntary Withholding with your state unemployment office. You can only request that 10% of each payment be withheld from your unemployment benefits for federal income taxes.
But you may decide not to have taxes withheld if you need to stretch your benefits as much as possible now. "If you are strapped for cash and need every dollar for living expenses, I would take out minimal taxes now and deal with the shortage at tax time," states Morris Armstrong, who is an enrolled agent in Cheshire, Connecticut. You may also have to pay a penalty because you didn't pay taxes throughout the year. "If your stint is short-lived, or you expect it to be, and you do have a nest egg, then I would recommend that you withhold adequately."
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