How to Pay State Taxes on Unemployment Payments
A lot of people don't realize that unemployment payments are considered taxable income. If you don't plan for this while you collect the payments you may have a surprisingly high tax bill when you file for the year. You can avoid this by making arrangements to pay state taxes before the tax bill arrives.
If you collect unemployment payments from the state, you are required to pay taxes on these payments. When you file your taxes at the end of the year you will be asked about unemployment compensation. You should also get a tax statement at the end of the year from the state just for this. Instead of ignoring it, you can take steps to put money aside so this isn't such a hassle come tax time.
- Withhold money from your payments. Many states will give you an option to withhold a certain dollar amount or percentage from your check for taxes. This may cut in to your payments a little, but it's well worth the option. It's much easier to have $20 withheld from each payment to go towards your taxes than it is to come up with $900 or more when you file at the end of the year.
- Consider filing quarterly. You don't need a special reason to file taxes quarterly. People who always expect to owe money will do this to make it more manageable. You can file quarterly on your own or seek the help of a tax accountant.
- Set up a savings account. If you have a savings account you can plunk a small portion of the money in it on each payment. This way if you have a week where money is tight you can forgo the savings and make it up the next week. At the end of the quarter or year you'll have some money put aside to pay the taxes on your unemployment.
- File correctly. When you file your state taxes you'll need to include information about federal withholdings too. Make sure you are filling out the paperwork correctly to avoid getting in hot water later.