Unemployment benefits taxable

[airdvr 197]

I'm thinking that the last 5 years of high unemployment and the resultant tax burden has taken thousands if not millions and put them in a bad way with the IRS.

Why wouldn't the goobermint deduct taxes from the checks? They have to know if you are unemployed you are probably not setting aside money for the tax bill.

Please don't dent the planet.

Destinations by Roxanne

[kelpdiver 2]

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I'm thinking that the last 5 years of high unemployment and the resultant tax burden has taken thousands if not millions and put them in a bad way with the IRS.

Why wouldn't the goobermint deduct taxes from the checks? They have to know if you are unemployed you are probably not setting aside money for the tax bill.

If you're only out of work for a few months, the excess withholding from your working paychecks (which presume that period will be true for the year) tends to balance out without the need.

[DrewEckhardt 0]

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I'm thinking that the last 5 years of high unemployment and the resultant tax burden has taken thousands if not millions and put them in a bad way with the IRS.

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Why wouldn't the goobermint deduct taxes from the checks?

It benefits a lot of people and means the government sponsored enterprises (which often buy or insure the majority of mortgages in this country) have fewer losses due to foreclosure.

Unemployment tends to replace half of your working income up to a low cap (~$50K/year) which isn't adjusted for high cost/high wage areas where it may total 1/4 or less of your salary so at the time of unemployment people are really squeezed for cash if they didn't save for the situation.

If an unemployed person was making very little money they won't have a tax liability and it doesn't matter.

People with good incomes who stay unemployed for a while will have a drop in effective tax rate although they withheld for the higher rate and came out fine.

People who are unemployed for a long time won't be paying much in taxes. With the standard deduction and personal exemption a single person getting the maximum unemployment benefit in a year will have about $2200 in taxable income with $220 due in taxes ($12K maximum benefit, $5950 standard deduction, $3800 personal exemption).

It's only a potential problem for people who are unemployed for a short time and might not have things 'just work out' who'd need to come up with $500 per month they were unemployed with a 28% federal rate.

[JohnRich 4]

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If you're only out of work for a few months, the excess withholding from your working paychecks ) tends to balance out without the need.

If you're doing it right, you don't have any excess withheld from your paycheck. You do far better to tailor your withholding exemptions so that you keep more of your own money all year long, rather than let the government accumulate it and make you have to ask for it back at the end of the year.

[mnealtx 0]

I never let the company take out the default - I figure out roughly what my pay will be for the year and have them take out a fixed amount. It usually results in a small refund at the end of the year, but better than giving them a multi-thousand dollar loan that they won't even pay interest on when they give it back.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[kelpdiver 2]

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If you're only out of work for a few months, the excess withholding from your working paychecks ) tends to balance out without the need.

If you're doing it right, you don't have any excess withheld from your paycheck. You do far better to tailor your withholding exemptions so that you keep more of your own money all year long, rather than let the government accumulate it and make you have to ask for it back at the end of the year.

If your salary is fully predictable and your only taxable event, this is straightforward. But if your's moves around and you earn decent money in interest and dividends, then it doesn't work so well. I usually owe about a grand, this year it's over 5k. And that's just with a simple W4 setting of 2.

But it's besides the point - the question was why not tax unemployment benefits. The majority of people get a refund each year and most of them like it as a forced savings vehicle. Normally this would be bad, but in a world of poor saving and < 1% rate of returns, it's really not a problem.

[DrewEckhardt 0]

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If you're only out of work for a few months, the excess withholding from your working paychecks ) tends to balance out without the need.

If you're doing it right, you don't have any excess withheld from your paycheck. You do far better to tailor your withholding exemptions so that you keep more of your own money all year long, rather than let the government accumulate it and make you have to ask for it back at the end of the year.

If your salary is fully predictable and your only taxable event, this is straightforward. But if your's moves around and you earn decent money in interest and dividends, then it doesn't work so well.

It's entirely doable.

1. Some HR departments will allow you to withhold a fixed amount from each paycheck. That's _MUCH_ simpler than working backwards from how much you need withheld to some number of withholding allowances.

2. Where they won't it's still just arithmetic and if needed you can claim 29 allowances or whatever.

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But it's besides the point - the question was why not tax unemployment benefits. The majority of people get a refund each year and most of them like it as a forced savings vehicle. Normally this would be bad, but in a world of poor saving and < 1% rate of returns, it's really not a problem.

I get 2.26% interest on the first $25K in each of my two checking accounts. A 5K refund at the end of the year would mean forfeiting $56 in interest before taxes. While not a lot it's a meal.