Is unemployment a taxable grant - NYS Department of Labor benefits tax implications?
I'm really confused about whether my NYS Department of Labor unemployment benefits count as taxable income. My neighbor said unemployment is like a grant and doesn't get taxed, but I'm not sure if that's right. I've been receiving UI benefits for about 8 weeks now and want to make sure I'm prepared for tax season. Do I need to have taxes withheld from my weekly claims or will I owe a bunch when I file? Has anyone dealt with this before?
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Zoe Christodoulou
Yes, unemployment benefits are definitely taxable income at the federal level and in New York State. It's not a grant - it's considered compensation for lost wages. When you certified for benefits, you should have had the option to have federal taxes withheld (10%) and state taxes withheld. If you didn't elect withholding, you'll need to pay quarterly estimated taxes or you'll owe when you file your return.
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Andre Moreau
•Oh no, I don't think I elected any withholding when I filed my initial claim! Can I change that now for future payments?
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Jamal Thompson
You can update your tax withholding preferences in your my.ny.gov account. Log in, go to your unemployment services, and look for tax withholding options. You can start having taxes taken out of future payments, but you'll still need to handle the taxes on what you've already received. NYS Department of Labor will send you a 1099-G form in January showing your total benefits for the year.
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Andre Moreau
•Thank you! I'll log in tonight and set up the withholding. Better late than never I guess.
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Mei Chen
wait really?? i thought unemployment was like welfare or something and didn't count as income. this is news to me and i've been getting benefits for 6 months
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Zoe Christodoulou
•Unfortunately yes, UI benefits are fully taxable. Welfare programs like SNAP or TANF aren't taxable, but unemployment compensation definitely is. You should definitely set up withholding ASAP if you haven't already.
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CosmicCadet
I learned this the hard way last year - got a huge tax bill because I didn't have anything withheld. If you're having trouble reaching someone at NYS Department of Labor to change your withholding settings, I found this service called Claimyr that helps you actually get through to a live agent. Check out claimyr.com - they have a demo video at https://youtu.be/qyftW-mnTNI that shows how it works. Saved me hours of trying to call.
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Liam O'Connor
•How much does something like that cost though? Seems like it should be free to update your own account settings.
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CosmicCadet
•It's not about updating settings - those you can do online. It's for when you need to actually talk to someone about your specific situation. Sometimes the online system doesn't work right or you have questions that need a human to answer.
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Amara Adeyemi
Just a heads up - if you're doing any side work or gig work while collecting UI, that income is also taxable AND you need to report it on your weekly claims. Don't forget about that when tax time comes around.
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Andre Moreau
•Good point! I've been doing some freelance work here and there. I report it on my weekly claims but I should probably set aside money for taxes on that too.
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