How is unemployment taxed in California? What I learned after my first UI payment

Wait so California doesn't tax it?? That's actually really good news. I was assuming I'd owe both federal and state and was dreading it.

Correct, California is one of the states that exempts unemployment from state income tax. Only federal applies. Still smart to plan for it though.

Can confirm this. Got a 1099-G last January after collecting UI the previous year. Federal only, nothing owed to California.

Oh I didn't even know I could do that. Is it under the payment preferences section? I'm going to look right now.

Yes, it's in the payment preferences or settings area of UI Online. It's pretty easy to find once you're logged in. Just select the 10% federal withholding option and it kicks in going forward - won't apply retroactively to payments already made though.

I wish someone had told me this when I first filed. I skipped withholding thinking I'd save the cash and ended up owing almost $1,400 in April. Not a fun surprise.

Same happened to me. Got a new job in September but had collected since February. All of it went on my return. The 1099-G was clear about the total.

That's a good point, I'm actively job searching so hopefully I won't be on UI the whole year but good to know it's all reportable.

Is that a real thing?? I've been trying to get through to EDD for three days straight about a different issue. Going to check it out.

Claimyr is legit, I've seen it recommended a bunch of times here. Good for when you need to actually talk to someone at EDD rather than just reading info online.

Yeah it's real. The video demo at the link explains the process. Saved me a ton of frustration when I needed actual account-specific answers that I couldn't get from the website.

California EDD doesn't factor in your bracket - the 10% flat withholding is just a withholding option, not a precise calculation. If you normally fall in a higher bracket, the 10% withheld might not be enough. You might want to do your own calculation or talk to a tax person to figure out the right amount to set aside separately.

ugh ok so I might need to actually put money aside on my own on top of whatever EDD withholds. this is getting complicated lol

If you want more precision you can also make quarterly estimated tax payments directly to the IRS using Form 1040-ES. That way you're staying current and won't owe a big amount in April.

They really should put a prominent notice about this when you first certify. It's buried in the fine print somewhere but nobody reads that.

EXACTLY. It should be like a popup or something on UI Online. 'Hey just so you know this money is taxable at the federal level.' Two sentences. That's all it takes.

This is basically what I was afraid of. Really glad I asked before it was too late to set up withholding.

Good to know! Is it under the documents section in UI Online?

Yeah it's in the documents or correspondence section. Should show up there by late January for the prior tax year.

Can confirm it was available to download in my account. Got mine around January 20th last year.

No confusion here - FEDERAL taxes yes, CALIFORNIA STATE taxes no. So when you file your federal return (Form 1040) you'll include your UI income and may owe federal tax depending on your situation. When you file your California state return, unemployment benefits are excluded from California taxable income. Two different tax systems, two different rules.

OH. ok that makes way more sense. so I still need to deal with the IRS but not the California FTB for the UI income. got it thank you

Same confusion I had at first. The federal vs state distinction is what trips everyone up.

Oh that's a really important point. I've been doing some small freelance projects here and there. Need to keep track of all of that.

And don't forget if you're doing freelance while on UI you need to report those earnings on your weekly certifications to EDD! Not reporting is considered fraud. The tax issue is separate from the reporting requirement.

^^^ Really important point. Reporting to EDD and reporting to the IRS are two separate obligations. Both required.

TurboTax and most tax software will have a 1099-G section where you manually enter the box amounts. Some states have partnerships with tax software for auto-import but I wouldn't count on it - just have your 1099-G handy and enter the numbers yourself. It's only a few boxes.

ok not bad, I was hoping it would just import automatically but manually entering a few numbers isn't a big deal. thanks

Lmao that is genuinely a good system. Might steal that idea.

I did not do this and deeply regret it. Learn from my mistakes people.

The temptation to spend it is real when you're tight on money. But future you will be grateful.

Just watched the video - this looks really useful. Bookmarking for when I inevitably run into an issue I can't solve online.

Been trying to call EDD about an unrelated issue and cannot get through. Gonna try this.

I didn't know about the safe harbor thing. That's actually reassuring. So if I withheld enough through my job earlier in the year I might be mostly covered?

Potentially yes. The IRS looks at total tax paid throughout the year across all sources. A tax software program can walk you through the calculation at filing time.

This is a good point. The IRS underpayment penalty calculation isn't always as bad as people fear when you've had some withholding during the year.

Go go go! Better late than never for sure.

done! takes like 2 minutes in UI Online. should have done this from day 1 smh

Good practical tip. The IRS has a separate address change form (8822) if you need to update them directly. EDD updating won't automatically notify the IRS.

Exactly, they don't talk to each other. Manual update required at each agency.

No difference for federal tax purposes. All UI income from the calendar year gets reported on the same 1099-G and taxed together with your other income for that year. The timing within the year doesn't change the tax treatment.

Ok that's what I figured but wanted to confirm. Thanks.

The only scenario where timing might matter is if it pushed you into a different bracket than you'd have been in otherwise, but that's just normal income calculation not anything UI-specific.

Same, I feel way less panicked now. At least I know what to expect and can plan for it.

That hope-for-the-best strategy never works out with the IRS lmaooo. Good call getting informed early.

What's VITA? I haven't heard of that.

Volunteer Income Tax Assistance - it's an IRS program where trained volunteers do free tax prep for people who qualify based on income. You can search for locations at the IRS website. They're really good at handling UI situations.

oh wow I had no idea that was a thing. my income is definitely lower this year because of the whole unemployment situation so I might qualify. thanks for mentioning it.

Is there a deadline for getting payment corrections done before the 1099-G goes out?

I'm not 100% sure of the exact deadline but the sooner the better. The 1099-G is supposed to be issued by January 31st so you'd want any corrections addressed well before that.

Good to know. I should double check my payment history against what I actually received just to make sure everything lines up.

Great job getting on top of it! You're in a much better position than most first-time claimants who just find out in March. Good luck with the job search.

Perfect. And bookmark this thread for when you get your 1099-G in January - all the filing info you need is basically here.

EDD's website is honestly useless for anything practical. Glad you got the real answers here. Good luck!