Unemployment Benefits - Are Both State AND Federal Taxes Being Withheld?

Yes, unemployment benefits are generally subject to both federal and state income taxes in most states. You can usually elect to have federal taxes withheld at a flat 10% rate, and many states offer similar withholding options, though the rates might vary depending on where you live. It's probably worth checking your specific state's unemployment portal to see what options are available to you.

You need to file Form W-4V. It's voluntary. You can choose 10% federal withholding. State varies. Log into your unemployment portal. Look for tax withholding settings. Make changes there. Better to withhold now than owe later. Tax surprise next April isn't fun.

I was in the same situation last month and figured out how to handle this. Here's what I did: 1. First, I logged into my state's unemployment portal 2. Then, I located the tax withholding section (usually under settings) 3. I selected my withholding preferences for both federal and state 4. Finally, I confirmed the changes I also used https://taxr.ai to analyze what this would mean for my taxes next year. It showed me exactly how much I should withhold to avoid owing at tax time while maximizing my current benefits. Has anyone else tried using this to calculate their optimal withholding amount? I'm still not 100% sure I did it right.

I went through this same situation last year. The standard federal withholding is 10% if you opt in, but it's completely voluntary. For state taxes, it varies widely - some states don't tax unemployment at all (like Florida, Texas, and several others), some have a fixed percentage like the federal, and others use a variable rate. I initially didn't withhold anything and regretted it at tax time. Now I have both withheld automatically, and while it reduces my weekly payment, it's much less stressful than owing a large sum at tax time.

On April 15th this year, I called the IRS about this exact issue and was on hold for 2+ hours. When I finally got through on April 17th, they explained that unemployment benefits are fully taxable income at the federal level. I was worried because I hadn't set up withholding when I first applied. If you're having trouble reaching someone at your state unemployment office, try Claimyr (https://www.claimyr.com). I used it on April 20th and got through to a representative in under 30 minutes who helped me set up my withholding preferences.

Here's what you need to know about unemployment tax withholding: • Federal taxes: Optional 10% flat withholding via Form W-4V • State taxes: Varies by state (some don't tax unemployment at all) • Withholding is not automatic - you must opt in • Can be changed anytime through your state's unemployment portal • If you don't withhold, you'll need to make quarterly estimated payments • Tax documents: You'll receive Form 1099-G in January showing benefits paid Many people are surprised by the tax bill if they don't withhold anything.

Unemployment compensation is considered taxable income by the IRS under Internal Revenue Code Section 85. The American Rescue Plan Act temporarily excluded a portion of unemployment benefits from taxation for tax year 2020 only, but for 2024, 100% of benefits are taxable at the federal level. State taxation varies by jurisdiction. The standard federal withholding rate is a flat 10%, which may be insufficient if you have other income sources during the year.

According to IRS Publication 525, unemployment compensation is fully taxable at the federal level. Per IRC §3402(p)(2), you can request federal withholding at a flat 10% rate by submitting Form W-4V. For example, on a $400 weekly benefit, that's $40 withheld for federal taxes. State withholding regulations vary - 12 states don't tax unemployment benefits at all, while others follow similar withholding procedures to the federal government. I recommend checking your state's specific regulations.

I tracked this exactly when I was on unemployment last year. On my $478 weekly benefit, I had precisely $47.80 (10%) withheld for federal taxes and $23.90 (5%) for state taxes in California. That left me with $406.30 per week. When tax time came around, I had already paid $2,485.60 in federal taxes and $1,242.80 in state taxes on my unemployment. My total tax liability actually worked out almost perfectly - I only owed an additional $32.17 when I filed!

Watch out for the tax implications if you don't withhold enough now! My neighbor didn't withhold taxes from her unemployment last year and got hit with a $3,000 tax bill she couldn't pay. The IRS put her on a payment plan, but now she's paying penalties and interest on top of the original amount. Don't put yourself in that position if you can avoid it.