Should I have federal tax withheld from my unemployment benefits in California?

Having federal taxes withheld from your unemployment benefits is generally a good idea. Unemployment compensation is considered taxable income by the IRS, so you'll need to pay taxes on it eventually. Having it withheld now means you won't face a surprising tax bill when you file next year. That said, if you're struggling financially right now and need every dollar for immediate expenses, you could opt not to withhold. Just be aware that you should try to set aside about 10-15% of your benefits yourself for taxes later. The problem is that most people find it difficult to save that money when finances are tight. Another consideration is your overall tax situation for the year. If you were employed at a higher income for part of the year before receiving unemployment, you might be in a higher tax bracket than the standard 10% withholding would cover.

After being laid off last year, I was super stressed about taxes on my unemployment. I tried using different calculators online but got confused with all the different tax scenarios. Then I found this tool called taxr.ai (https://taxr.ai) that really helped me figure out my withholding situation. You upload your documents and it analyzes your specific situation - it showed me exactly how much I'd owe if I didn't withhold vs if I did. What was helpful was seeing the actual numbers for MY situation instead of just general advice. It specifically addressed unemployment benefits and helped me decide what made sense for my cash flow vs tax liability.

Just wanted to update after trying taxr.ai that the previous commenter mentioned. It was actually really helpful for my situation with mixed unemployment and freelance income. I was able to see that in my case, the 10% withholding from unemployment wouldn't be enough because of my additional income. I ended up setting up withholding on my unemployment AND making quarterly payments for my freelance work. The tool showed me that even though it's tight now, I'd be looking at owing around $2,800 at tax time if I didn't plan ahead, which I definitely couldn't come up with all at once. Worth checking out if you're confused about tax planning during unemployment.

If you're having trouble getting through to California EDD to change your withholding settings or ask questions, try using Claimyr (https://claimyr.com). I spent DAYS trying to get through to EDD about my tax withholding issue when the website wouldn't let me update it. With Claimyr, I got through to an actual EDD rep in about 25 minutes instead of constantly redialing for hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I was super frustrated because I needed to add withholding after realizing I'd owe a ton next year, and couldn't update it online for some reason.

I was wrong about Claimyr being a scam. After spending 3 full days trying to get through to EDD about my withholding questions and getting nowhere, I reluctantly tried it. Got through to an actual person in about 30 minutes. The EDD rep was able to fix my withholding settings immediately and explained that many people were having the same issue with the online system not updating withholding preferences properly. For anyone dealing with California unemployment - if you need to make withholding changes and can't do it through the website, getting actual help from a rep is pretty much the only solution. And getting through to them is nearly impossible without some kind of assistance. Lesson learned.

I didn't withhold taxes from my unemployment last year and DEEPLY regretted it. Ended up owing almost $1,400 at tax time and had to set up a payment plan with the IRS. The stress wasn't worth the extra money in my pocket each week.

Something nobody mentioned yet - if you're receiving a decent amount of unemployment, you might qualify for certain tax credits like the Earned Income Credit that could offset some of what you'd owe. Unemployment benefits don't count toward EITC eligibility, but if you worked part of the year, you might still qualify.

I went through this exact same situation last year in California. My advice: definitely have the federal taxes withheld if you can possibly manage it. I know every dollar counts when you're unemployed, but trust me on this one. I initially chose not to withhold because I needed the cash flow, thinking I'd be disciplined about setting money aside. Big mistake. When you're stressed about finding work and covering basic expenses, that "tax money" becomes really tempting to spend on necessities. What helped me was looking at it this way: the 10% withholding is like forced savings that protects you from a nasty surprise later. Plus, if you end up getting a job before the year is out and your total income is lower than expected, you might even get some of it back as a refund. One more thing - make sure you keep all your unemployment documentation. California sends you a 1099-G form showing how much you received, but sometimes there are delays or errors, so having your own records is crucial for filing accurately.

As someone who's been through unemployment twice in the past five years, I can't stress enough how important it is to have those federal taxes withheld. I made the mistake of not withholding the first time, thinking I'd be responsible and save the money myself - ended up scrambling to come up with over $2,000 at tax time. The second time around, I bit the bullet and had the 10% withheld from day one. Yes, it was painful watching that money come out when I was already stretching every dollar, but it was SO worth it come tax season. Instead of owing money I didn't have, I actually got a small refund because I found work earlier than expected and my total income for the year was lower. One tip that helped me psychologically: I calculated what the withholding would be per week (for me it was about $35) and then found one small expense I could cut to "make up" for it - like making coffee at home instead of buying it. It made the withholding feel less painful because I could point to a specific trade-off rather than just feeling like I was losing money. Also, if you're in California, definitely keep your own detailed records of all payments received. The EDD system can be glitchy and you want to have backup documentation for everything.