PA UC tax withholding issue tanked my tax return by $1500 - need explanation!

The unemployment itself isn't taxed at a higher rate, but it is considered taxable income. What likely happened is that adding $4,500 to your income pushed you into a different tax bracket or reduced some credits you were eligible for. When you don't have taxes withheld from UC benefits (which is an option you can select when filing), you're essentially creating a tax liability that comes due at filing time. For future reference, you can request to have 10% withheld from your UC payments by completing the Voluntary Withholding Request through your dashboard.

same thing happend to me last yr! i didn't have taxes taken out of my uc and it totally screwed my return. the tax guy told me its bc the extra income pushes u over certain limits for some credits and deductions. it sucks but its legit

This is actually very common with unemployment benefits. The impact on your tax return is typically more than just the taxes on the benefits themselves. Here's what might be happening: 1. The $4,500 could have pushed you into a higher tax bracket for part of your income 2. You might have lost or reduced eligibility for certain credits like the Earned Income Credit 3. The change in your Adjusted Gross Income could have affected deduction eligibility To verify everything is correct, I'd recommend reviewing your tax return line by line, particularly looking at any credits you qualified for last year but might not have received this year. If you used tax software, try running a comparison between last year and this year to see what changed. For anyone reading this who's currently on unemployment: always select the option to have taxes withheld (it's 10% federal, and you can elect PA state withholding too). It's much better to get slightly smaller UC payments than to face a surprise tax bill.

I HAD THE EXACT SAME ISSUE LAST YEAR!! The UC system is BROKEN and they don't explain ANY of this when you sign up! I lost nearly $2000 on my return because of only $6000 in benefits. It's absolutely criminal how they trick people into thinking they're getting their full benefit amount only to STEAL it back at tax time. And good luck trying to call the UC office to complain or get an explanation - you'll be on hold FOREVER!!

If you need to talk to someone at PA UC about your benefits and taxes, I had success using Claimyr to actually get through to an agent. I was on hold for DAYS trying to get clarification about how to change my tax withholding settings mid-year. Found this service at claimyr.com that got me connected to an actual PA UC rep in under an hour. They have a video showing how it works: https://youtu.be/CEPETxZdo9E?si=WL1ZzVZWG3KiHrg2. The agent was able to explain exactly how to update my withholding preferences for future payments.

I'm actually a tax preparer and see this all the time with clients who receive unemployment. The issue isn't just about the taxes on the unemployment itself. When your overall income increases, it can affect other parts of your tax return in ways that cascade: 1. The Earned Income Tax Credit phases out as income rises 2. Other credits like the Child Tax Credit can be affected 3. Various deductions may be reduced based on AGI thresholds It's not uncommon to see a $1500 swing in tax liability from $4500 in unemployment benefits, especially if you were otherwise in the sweet spot for certain credits. For future reference, you can always make estimated tax payments throughout the year if you don't opt for withholding on your UC benefits.

wait do we have to pay state tax on it too or just federal??

heres a tip - if u end up owing a bunch in taxes bc of this, u can set up a payment plan with the IRS. thats what i had to do. its online and pretty easy