Should you withhold taxes from unemployment? California EDD question

Wait really? I thought it was something you set at the beginning and that was it. That's actually a relief.

Yeah I had the same question when I first started certifying. Glad someone cleared that up fast.

That's exactly what I needed to know about the state side — I kept reading conflicting stuff online. So federal yes, California no, got it.

The retroactive thing tripped me up too. The weeks that already paid out before I turned on withholding, I just estimated what I'd owe federally and put it in a savings account. Worked fine at tax time.

How long did it take to actually get through to someone? I've been trying to sort out my own pending week issue and can't get past the hold music.

The wait on hold was what it was, but the service handles that part — I just got a notification and picked up when an EDD agent was on the line. Asked my question, got the answer, done.

Depends on your total income picture for the year honestly. If unemployment is your only income, 10% might be more than enough. If you went back to work partway through the year at a decent salary, you might owe more because the two stack together in higher brackets. The 10% option EDD offers is just a flat withholding choice, not a calculation of what you actually owe.

Makes sense. I didn't think about the stacking with other income. I went back to work in September so I should probably do my own math before the year ends.

Okay this is the part that's stressing me out now. I was employed for about four months before I got laid off, so I definitely have wages AND unemployment benefits in the same tax year. I should probably just pull the 1099G when it comes out and compare.

EDD mails it every January, but you can also find it in UI Online — go to Payments and then there's a Form 1099G option. It's available by January 31st and they keep it there for five years, so you can always pull up old ones too.

Oh good, I went paperless when I set up my account so I was afraid it just disappeared into the void.

Same question I had. Bookmarked the Payments section in UI Online after reading this, good to know where to look.

Depends on how long you're out of work. If you're collecting the max weekly amount for several months, that adds up pretty quickly to something that could mean a noticeable tax bill in April. At $450 a week for 26 weeks that's close to $12,000 in taxable income federally.

Okay yeah when you frame it that way, $12k at even a 12% bracket is like $1,400. That's not nothing.

Exactly why I was nervous about it. I've been out of work for about two months now and the number is adding up faster than I expected.

Wait I thought California taxed everything. I've been setting money aside for state taxes this whole time for nothing??

UI benefits are specifically exempt from California state income tax — that's one area where California is actually more generous than the federal treatment. Your wages from earlier in the year are still taxable at the state level obviously, but the unemployment portion is not.

Ughhh okay good to know going forward but that is frustrating to find out now. Thanks for the correction at least.

There was a one-time exemption for some unemployment income during the pandemic period but that ended. Right now unemployment benefits are fully taxable as federal income — no exemption. So yes it's been taxable federally for a long time, the brief exemption was temporary and it's gone.

Ah okay, I remembered that exemption and thought it might still be in effect. Good clarification.

You can change it each time you certify — you're not locked in. If you said no last time, say yes next time, or vice versa. It's not a permanent election.

That flexibility is way better than I expected honestly. I'll probably switch it on for the next one since my wife and I file jointly and I don't want a surprise.

Filing jointly adds another layer I hadn't even thought about. I'm single so at least I only have my own situation to calculate.

Does the calculator account for the waiting week? Like the first week you don't get paid?

The calculator estimates your weekly benefit amount and maximum benefit amount based on your wages — it doesn't track which weeks were paid or the waiting week. For figuring out total taxable amount, the actual 1099G is what matters. The calculator is just useful for estimating your weekly amount before you get the DE 429Z.

Got it, so the 1099G is the real number and the calculator is just a preview tool. Makes sense.

The 1099G covers everything EDD paid you in that calendar year regardless of how many claim periods or certifications it involved. It's the total annual amount, not broken out by claim.

Okay good, one form is way easier to deal with. I was dreading having to reconcile multiple documents.

No, the withholding choice is entirely between you and the IRS — EDD doesn't penalize you or flag your account for choosing not to withhold. It's just a convenience option so you don't face a big bill at tax time. EDD's job is done when they report the amount on the 1099G.

That's what I figured but I was worried some automated system would treat it as suspicious or something. Good to know it's neutral.

Purely IRS. EDD reports what they paid you and that's the end of their involvement on the tax side. Any underpayment penalty, if the IRS assesses one, is between you and the IRS. EDD doesn't get looped back in.

Makes sense, they're just the payer of record. After that it's your problem with the IRS not theirs.

This whole thread has been genuinely useful. I feel way less anxious about the tax piece now.

That's honestly a solid approach. The 10% takes something off the top automatically and then a December checkup gives you enough time to make an estimated payment before year end if needed. Most people undershoot on the manual savings method.

Yeah I know myself — if the money sits in my account I'll spend it. Having EDD pull the 10% automatically is the safer move for me.

I ended up doing exactly this last year. The 10% plus a small estimated payment in January covered it and I even got a small refund. Not a system I hate.

If some weeks processed before you turned on withholding and others after, that would explain different net amounts. The gross weekly benefit should be the same for all of them, only the withholding deduction would differ.

That actually makes total sense — I turned on withholding partway through the pending period so the weeks that released with it active would have the deduction and the earlier ones wouldn't.

Weeks stuck in pending got resolved for me after I got on the phone with an EDD agent through Claimyr — the agent confirmed which weeks were actually pending a decision vs just processing normally, which helped me know which ones to be patient about and which to actually worry over.

That's good to know there's a way to get a clear answer. I might do the same if anything else looks off on mine.

EDD tracks your withholding elections through the certification process, so they already know what you've selected. You don't need to call or message them about it separately — the choice you make during certification is what they go by.

Good, I didn't want to have to file some separate form or anything. Simple is better.

Your coworker isn't totally off but there are real differences. No Social Security or Medicare (FICA) is taken from unemployment — those only come out of wages from employment. And as mentioned earlier in this thread, California state income tax doesn't apply to UI benefits either. So the only tax that applies is federal income tax, and only if you opt in to the 10% withholding or owe it when you file.

Okay so it's simpler than a paycheck from that angle, just the one federal tax to think about. That I can handle.

Also worth noting — employers pay for unemployment insurance, nothing comes out of your own paycheck for it. The CASDI deduction you see on your paystub pays for disability and paid family leave, not unemployment. Completely different program.

The 10% withholding comes out of whatever amount EDD actually pays you for that week — so if your benefit gets reduced because of part-time earnings, the withholding is 10% of the reduced payment, not the full weekly benefit amount.

That makes mathematical sense, they can only withhold from what they're paying out. I just wanted to make sure they weren't withholding from an amount I wasn't receiving.

I hadn't even thought about partial weeks and taxes. I've been doing a little freelance work and reporting it, so I guess my effective taxable UI income is lower than my weekly benefit times number of weeks.