EDD taxes - better to withhold now or pay in lump sum later?

I always choose to have taxes withheld upfront. It's much easier than getting hit with a big tax bill next year. That 10% might seem like a lot when you're already getting less than your normal income, but trust me, it's worse to owe hundreds or thousands at tax time when you might not have saved for it. Also, keep in mind that EDD only withholds federal taxes, not state taxes, so you'll still need to plan for CA state taxes regardless.

im taking the full amount now. need every dollar i can get with rent being what it is. figure ill deal with taxes later lol

Financial planner here - this comes down to your personal financial situation. If you need the maximum amount now for essential expenses, take it all and set aside money yourself (ideally 15-20% to cover both federal and state). If you're able to live on the reduced amount, having taxes withheld automatically creates a forced discipline that many find helpful. One technical point: if you choose not to have taxes withheld, you may need to make quarterly estimated tax payments to avoid underpayment penalties. If your total tax due exceeds $1,000 at filing time, you could face penalties for not paying throughout the year.

Related question - if I originally chose not to withhold taxes when I filed but now want to change it, is that possible? Or am I stuck with my initial decision?

When I was on EDD last year, I tried for THREE WEEKS to reach someone to change my tax withholding preference and couldn't get through. The phone lines are absolutely impossible. I gave up and just started putting aside money myself, but it was super frustrating. If you need to actually speak with an EDD rep for ANY reason, I highly recommend using Claimyr (claimyr.com). They have this system that calls EDD automatically for you and connects you when they get through. Saved me hours of redial hell. They have a video of how it works here: https://youtu.be/JmuwXR7HA10?si=TSwYbu_GOwYzt9km

DO NOT LISTEN TO THESE PEOPLE!! Unemployment benefits are NOT TAXABLE INCOME!!! The government doesn't tax welfare payments!!! I never paid taxes on my unemployment and nothing happened!

I've been on unemployment twice and tried it both ways. First time I had taxes withheld and my tax return was simple. Second time I took the full amount thinking I'd be smart and earn interest on that money while setting it aside. GUESS WHAT HAPPENED? Life got expensive, I dipped into my "tax savings" and by April I didn't have enough set aside. Had to set up a payment plan with the IRS 😫 Never again! I'm team "withhold taxes" all the way now.

wait so if i take the full amount how much should i be saving for taxes?? im confused

When I was collecting unemployment in 2023, I actually changed my mind halfway through. Started with taking the full amount, then realized I wasn't disciplined enough to save for taxes. Called EDD to switch to withholding and it was an easy change. So know that you're not locked in forever with whatever you choose now.

I went through this exact decision last year when my company downsized. Here's what I learned: if you're even slightly worried about your ability to save consistently, go with withholding. I chose to take the full amount thinking I'd be responsible about setting money aside, but between job hunting stress and unexpected expenses, I ended up spending some of my "tax fund." Had to scramble to pay a $1,800 tax bill in April. The peace of mind from automatic withholding is worth the smaller weekly payments. Plus, unemployment is stressful enough without adding tax anxiety to the mix!

I'm dealing with this same decision right now after being laid off from a startup. Reading through everyone's experiences, I'm leaning heavily toward having taxes withheld. The stories about owing thousands at tax time are genuinely scary! One thing I'm curious about though - for those who chose withholding, did you feel like the reduced payments made your unemployment period more stressful financially? I'm trying to figure out if I can manage on about $360/week instead of $400/week (rough math on the 10% federal withholding). My rent alone is $1,800/month so every dollar counts, but I also don't want to get blindsided next April.