Unemployed Doesn't Mean Untaxed
As the economy sinks and unemployment rises, there’s been talk in Washington about temporarily suspending income taxes on unemployment benefits.
What, you say? If by misfortune I’m unemployed, I still might have to pay taxes?
Yes, you might. At the end of the year you’ve taking unemployment benefits, you’ll get a Form 1099-G (and so will the IRS) reporting what you’ve been paid.
It’s good to know this up front, however, because you need to set aside enough money to pay any income taxes you might owe.
Depending on your circumstances, you might even be required to make quarterly estimated income tax payments because you’re no longer having taxes withheld by your employer.
(Estimated taxes are what the IRS expects people to pay when their income is not subject to withholding, such as investment or self-employment income.)
If you want to play it safe, though, the IRS gives you a way.
Fill out Form W-4V to have 10 percent of your benefits withheld for federal income taxes. You can do this online, but then you need to make a copy and sign it. Send it to your state unemployment office.