Should I have taxes withheld from California EDD unemployment benefits?

Great question and honestly one that trips up a LOT of people. Here's the breakdown for California EDD unemployment benefits and taxes: Federal taxes: Unemployment benefits ARE taxable income at the federal level. You can request voluntary federal income tax withholding of 10% from your weekly benefit payments. This is done by filing form DE 4S with California EDD. State taxes: This is where California is actually different from most states - California does NOT tax unemployment benefits at the state level. So you only need to worry about federal withholding. To set up withholding now, log into your UI Online account, go to your claim details, and look for the tax withholding option. You can change your withholding election at any time during your claim - it's not too late at all. Whether you SHOULD withhold depends on your situation. If you have other income sources this year or expect to owe federal taxes, definitely set it up. If unemployment is your only income for most of the year and you're in a lower tax bracket, you might be fine without it but you'll still need to report it on your federal return.

I'd also add - if you're worried about whether to withhold or not, think about what your total income will look like for the full year. If you worked the first part of the year before getting laid off, those wages plus your unemployment benefits together might push you into a bracket where you'll owe federal taxes. In that situation, withholding 10% from your EDD payments is a smart move. I made the mistake of not withholding my first time on unemployment and ended up owing about $900 at tax time which was brutal when I was already broke from being unemployed.

For anyone struggling to get through to California EDD to ask about tax withholding or any other claim questions - I know the phone lines are absolutely brutal. I spent almost two weeks trying to reach someone about my own claim issues. A friend told me about Claimyr (claimyr.com) and it was genuinely a game changer. There's a video showing how it works at https://youtu.be/JmuwXR7HA10 - basically it holds your place in the EDD phone queue and calls you back when an agent is available. I actually got through to someone within a couple hours after weeks of failed attempts. If you have questions that need a live person to answer, it's worth checking out.

don't forget you'll get a 1099-G form from California EDD in January for the prior tax year. that form shows your total unemployment benefits paid and any federal taxes withheld. you use that to fill out your federal tax return. if you set up withholding mid-claim like you're planning to do, the 1099-G will show whatever was withheld from that point forward

NOBODY TOLD ME ANY OF THIS when I first filed!! I went almost 5 months without withholding anything and then got slammed with a federal tax bill. The EDD system should just automatically ask you this when you first file instead of burying it in the options. I ended up owing like $1,100 in federal taxes which I had to set up a payment plan for because obviously I didn't have that money just sitting around. The whole system is designed to make things harder for people who are already struggling.

To answer your question more directly about whether you SHOULD withhold - it really comes down to a few factors: 1. Did you earn wages earlier in the year before your layoff? If yes, withholding is probably smart. 2. Are you filing jointly with a spouse who has income? If yes, definitely withhold. 3. Do you have other income sources (freelance, investments, etc.)? If yes, withhold. 4. Is unemployment your only income and you've been unemployed most of the year? You might be in a low enough bracket that you won't owe much, but it's still safer to withhold. The 10% federal withholding on EDD payments is the only option available - you can't choose a different percentage. For most people who worked any portion of the year before going on unemployment, that 10% usually covers what they'll owe or gets them close. You can always adjust your other withholding situations when you return to work.

one thing to add - if you decide NOT to withhold, you should at least set aside some money from each payment yourself into a savings account so you're not caught completely off guard at tax time. Even just manually putting 10-12% of each EDD payment aside in a separate account means you'll have it ready when you file. I did this during my second unemployment stint after learning the hard way the first time.

I'm in a similar boat and was just searching this exact question. For what it's worth I called EDD last week to ask about changing my withholding election and after 3 hours of trying I finally got through and the agent confirmed you can update your tax withholding through UI Online at any time - you don't need to call to do it. Just wanted to confirm that in case anyone else was going to try calling for this particular thing.

also be aware that if you DONT get the 1099-G in the mail and forget to report your unemployment income on your federal taxes that can cause problems down the line. the IRS gets a copy of the 1099-G from California EDD automatically so they know what you received. underreporting it can trigger audits or letters. just make sure you report it all even if you think the amount is small

random but related - I got confused for a while thinking California was taxing my unemployment because my first few payment summaries were confusing to read. Took me a while to figure out the deductions showing were just the federal withholding I'd elected. So if anyone looks at their payment details and sees a deduction and panics thinking CA is taxing them - it's just the federal 10% if you set that up, not state tax.

Coming back to mention - if you run into any claim complications beyond just the tax withholding question (like adjudication holds or identity verification issues), those are situations where you really do need to talk to a live EDD agent. The Claimyr service I mentioned earlier (claimyr.com) is genuinely useful for those scenarios. You can check out the demo video at https://youtu.be/JmuwXR7HA10 to see how it works before trying it. Phone access to EDD can make the difference between a claim getting resolved quickly versus dragging on for weeks.

Does anyone know if setting up withholding affects your weekly benefit amount displayed or does it show the gross and then deduct separately? I just want to make sure I budget correctly based on what I'll actually receive

this thread is gold. I've been on EDD twice now and still learn new things every time. the 10% federal withholding thing is so important and I feel like most people find out about it the hard way after their first unemployment claim. wish I'd seen something like this my first time around

Quick note for anyone who is self-employed or was doing gig work before filing - your tax situation might be a little more complicated than the standard W-2 layoff scenario. If you had freelance income earlier in the year and are now on unemployment you might want to consult a tax person about whether 10% withholding will be sufficient given your full income picture for the year.

I also want to mention - even if you didn't withhold anything at all, you can still pay what you owe when you file your taxes without it being a huge disaster UNLESS you owe more than $1,000 in federal taxes and didn't make any estimated payments. Then you might get hit with an underpayment penalty on top of what you owe. So it's not like disaster strikes the moment you don't withhold but there are downstream consequences if the amount is big enough.

just chiming in to say I set up my federal tax withholding on UI Online in about 3 minutes last week. It's under the 'Tax Withholding' option in your account and you just check the box to have 10% withheld. Super easy process at least on the online end.

One more scenario worth mentioning - if you get a new job before the end of the year, make sure you account for the fact that your new employer's withholding is only based on your wages with them, not on the unemployment income you received earlier in the year. So you might want to increase your W-4 withholding at your new job to compensate for any gap from your unemployment period where you had less or no withholding. A lot of people return to work and assume everything will be fine with their taxes and then still end up with a shortfall.

Bookmarking this whole thread. Should be required reading for anyone filing for California EDD unemployment for the first time. The tax withholding question is genuinely one of the most important things to understand and EDD buries it.

to summarize for anyone who lands on this thread in a panic like I did when I first read it: - unemployment benefits are taxable at federal level - California does NOT tax unemployment at state level - you can elect 10% federal withholding through UI Online at any time - you'll get a 1099-G in January showing what you received and any withholding - you MUST report unemployment income on your federal return regardless - if you need to call EDD for anything complicated, the Claimyr service at claimyr.com has helped a lot of people actually get through - there's a demo at https://youtu.be/JmuwXR7HA10