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What You Need to Know About Taxes If You Collected Unemployment

Taxes are a confusing topic in any year, but collecting unemployment ads an entirely new layer.

"Taxes Key" by Got Credit is licensed under CC BY 2.0

Tens of millions of Americans collected unemployment last year, many for the first time. You may be doing taxes after collecting unemployment insurance for the first time, and it is important to note that the process is different in a few key ways from traditional employment.

When you start a new job, your employer will typically set up tax withholding, where you pay your taxes out of each paycheck and calculate any refunds or additional payments owed come tax time. Jobless aid is taxed similarly to income but does not usually have taxes automatically taken out. This is likely to lead to millions of Americans facing a surprise tax bill this spring as Goldman Sachs estimates taxes on unemployment insurance received last year could reach $50 billion. 38% of Americans receiving benefits were unaware that unemployment insurance is taxable and could be staring down a major financial shortfall.

If you collected unemployment last year, here's what you need to know as you prepare your taxes.

1. You don't need to pay Social Security or Medicare taxes

You will be expected to pay taxes on unemployment benefits, but those taxes will be slightly less than if you had received the same amount from traditional employment. That is because they are exempt from Social Security and Medicare taxes, both of which total 7.65% for a usual worker. This means you may be paying a lower tax rate than you expect.

2. You might not need to pay state taxes

If you live in one of the nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) with no state income tax, your unemployment benefits will also not be taxed on the state level. However, five additional states exempt unemployment insurance from taxation. These states are California, Montana, New Jersey, Pennsylvania and Virginia. If you live in one of these states, you only need to worry about federal taxes on your unemployment benefits. You will likely still need to file taxes for any income from regular employment, but this amount will be much less than if your jobless benefits were also taxed at the state level.

However, things get a bit tricky if you live in Indiana or Wisconsin. Both of these states may allow you to exempt a portion of your jobless benefits from taxation, depending on your total income. In both states, you will need to fill out your "Unemployment Compensation Worksheet" to see if you can exclude any portion of the payments you received.


The United States is a patchwork of different tax policies when it comes to unemployment. Know what your state's policy is.

3. Your stimulus payments are not taxable

The federal government issued two rounds of stimulus payments last year; one in April and one in December. These economic income payments are not taxable and are separate from your jobless aid.

4. The government still has time to reduce your tax bill

If you collected unemployment last year, you might want to consider waiting a bit longer before filing taxes. That's because in February of 2021, Sen. Dick Durbin, D-Ill., and Rep. Cindy Axne, D-Iowa, introduced the Coronavirus Unemployment Benefits Tax Relief Act. If passed, this would waive federal income taxes on the first $10,200 of unemployment benefits received in 2020. This would be a larger version of 2009, when lawmakers provided a similar exemption for up to $2,400 in jobless aid. Right now, it is unclear how likely this bill is to pass both chambers. You may want to consider filing closer to the April 15th deadline or prepare to file an amended return if it does become law.

5. There are options if you cannot afford to pay your tax bill right now

If you haven't set aside enough to pay your tax bill this year, you are not alone and there are other options. The IRS does allow you toapply for a payment plan as well astemporarily delay the collection of your tax debt. Both of these may entail paying interest and fees on top of your tax bill, but this will be much less than if the IRS has to take collection action against you.

If you cannot pay your tax bill by April 15th, contacting the IRS for a payment plan can help you avoid stiff penalties.


6. If you are still on unemployment, set aside money for next year's tax bill

If you haven't been setting aside taxes on your unemployment benefits, you may want to start now to avoid a tax headache next year. Log on to your state's unemployment benefits portal and update your withholding. The federal government will withhold 10 percent of your unemployment income toward your taxes. If you don't, you are still on the hook for the taxes and must determine and pay quarterly estimates on your unemployment income.

7. You may qualify for new tax deductions and credits

Many people saw their incomes reduced by going on unemployment, and this could open up new opportunities to save on your taxes this year. If you were able to work for part of the year, you may now qualify for the Earned Income Tax Credit (EITC), a credit for working people with low to moderate income. Unemployment is not considered "earned" income in this case, so you will likely only qualify if you earned income from traditional work this year. Your exact qualification will depend on a variety of factors including your dependents, your filing status, and your total earned income.

If you were able to save last year, you may also be able to qualify for the saver's credit. This would allow you to receive a credit of between 10% to 50% of your contribution to retirement account, depending on your income and filing status. Remember that you still have time to claim this credit as the deadline to contribute to last year's IRA is not Tax Day this year. If you qualify, you may wish to make a contribution before filing taxes in order to claim the credit.

Your state may have additional credits for you to take advantage of, such as the income-based renter's credit in thirteen states. Look at the tax credits available in your state to take full advantage of any help available in what may be a lower-earnings year for you.

Disclaimer: Paypath and its affiliates do not provide tax, legal or accounting services. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. If you have any concerns regarding your unique tax situation, you should consult your own tax, legal and accounting advisors.

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Seven of the Most Overlooked Tax Deductions

It's a pretty good feeling to get that tax return check in the mail, but a pretty bad one to realize you forgot to include a tax deduction that would have lowered your tax bill or increased your returns. With the ever-increasing complexity of the tax laws, filing taxes just gets more and more complicated. To help simplify things, we assembled a list of some of the most commonly overlooked tax breaks you should take advantage of.

Student Loan Interest

Student loan payments can be a significant part of your monthly expenses, but luckily you can claim up to $2,500 in interest paid on student loans for higher education. This deduction is available to you if you're paying interest on a student loan for yourself, your spouse, or a dependent child.

Health Insurance Premiums

Health care is expensive, and only getting more expensive. Luckily, the IRS takes this into account. Deductible medical expenses have to exceed 10 percent of your adjusted gross income (AGI) to be claimed as an itemized deduction in 2019, but if this is true of you, you're looking at some major savings.

Social Security Tax By the Self-Employed

Every employed American has to pay into social security, including the self-employed, who are then eligible for a deduction on a portion of this tax. Usually, employers pay a portion of social security, but when you're self-employed you're paying the portion of the employer and the employee, which amounts to 12.4% on up to $128,400 of earnings.

Unusual Business Expenses

It may seem obvious that you can write off the cost of business expenses, but you may not know how many different kinds of business expenses that include. As Turbotax points out, "A junkyard owner, for example, might be able to deduct the cost of cat food that encourages stray cats to hang around and keep the mice and rats away. A bodybuilder got approved to deduct the body oil he used in competition."

Charitable Donations

While most taxpayers probably know that you can write off major charitable donations, many don't know that you can also write off smaller ones. Additionally, it's possible to write off expenses paid out of pocket that allowed you to spend time working for a charity, such as hiring a babysitter for your children so you can volunteer at a soup kitchen. Or, if you drove your car to charitable activities, you can deduct 14 cents per mile, plus parking and tolls paid.

Earned Income Tax Credit (EITC)

While a large portion of Americans qualify for the EITC, 25% of people don't claim it. This is actually a tax credit, ranging from $519 to $6,431 for 2018. You likely qualify for this credit if you're low income, or if you recently lost a job, took a pay cut, or worked fewer hours during the year.

Medical Costs

According to the affordable care act, taxpayers under 65 who accrue medical expenses greater than 10% of their annual income can earn a significant tax deduction. To reach this 10% threshold, you can tally up medical expenses that may not seem obvious, like transportation costs to and from the hospital.

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The Easiest Way to Get Out of Tax Debt

Tax Relief

Tax debt can become a major source of stress. Wouldn't it be great to just make one payment and have all your tax debt disappear?

With an offer in compromise (OIC), that's actually possible. Whether you have major debt, are just getting started in your career, or are in another situation that has made it difficult for you to pay your tax liabilities, an OIC might be a great option to help you get back on track.

Pirsch Law

What is an OIC?

The IRS's website describes an OIC as an: "agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer's tax liabilities for less than the full amount owed." Essentially, if an individual simply cannot pay their debt to the IRS, there is little chance of them being able to pay in the near future, and they don't own any significant property, they can offer the IRS a percentage of the money they owe, and if the IRS accepts, the individual's debt is settled.

However, taxpayers who can pay the liabilities through an installments or other means, generally won't qualify for an OIC. For an individual to qualify for an OIC, the taxpayer must have filed all past tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.

Who Qualifies for an OIC?

While this might sound like a very appealing way to resolve your debt, there are important stipulations to keep in mind. The IRS isn't going to accept any amount of money in exchange for waving your debt and generally won't accept an OIC unless the amount proposed is at least equal to the reasonable collection potential (RCP). The RCP is the combined value of the taxpayer's assets, such as real estate, automobiles, bank accounts, and other property. The RCP also includes anticipated future income.

Additionally, there are three reasons that the IRS would accept an OIC.

  1. Doubt as to liability. This is when there is a credible reason to believe that an individual's tax debt does not actually exist or is not as high as the IRS believes.
  2. Doubt as to collectibility. This occurs when a taxpayer's income and combined assets don't add up to the full amount of the tax debt.
  3. Effective tax administration. This is when there's no doubt that the tax debt is owed and that the full amount can be collected, but that doing so would economically cripple the taxpayer irrevocably.
If you think you may qualify, you can visit the IRS's page on OICs to learn how to apply. While this debt solution may only work for some, it's important to know your options when dealing with debt of any kind.


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Dirty Money — Is Trump Making Money Off His Presidency?

It's been nearly four years since President Trump's election, and to make an understatement, his approach to the presidency has been unorthodox.

In an unprecedented break of presidential custom, he has refused to release his tax returns despite ongoing claims of fraud. In an administration led by one of the most recognizable names in the world, the decision to keep the president's personal finances secret has raised many questions, the most notable being: is it possible that Trump may be making money off his presidency?

Back in 2000, Trump made that very claim: "It's very possible that I could be the first presidential candidate to run and make money on it." In a macro sense, this is obviously based on the real estate mogul's simple maxim of "all press is good press," which the 2016 election made obvious with an estimated $2 billion of free media for Trump. Does all the additional coverage help his business like it helped win him the election?

Regarding Trump's many properties, the answer appears to point that way.

Although declining prices have likely hurt its worth, Trump's 11,000-square-foot penthouse in Trump Tower is now essentially a national monument and is positioned to sell for an additional $10 million simply because of an increase in the value of its main tenant.

Trump Hotels have also seemed to benefit, as President Donald Trump frequently uses his luxury properties for government business and leisure, prompting ethics concerns over a president appearing to promote his private enterprise at public cost. Government officials in Kuwait canceled a major event they had planned at the Four Seasons Hotel and switched their venue to Trump's hotel in D.C. under alleged pressure. The same luxury hotel has emerged as a political power hub and is at the center of a court case about presidential emoluments.

Regarding the president's infamous Mar-a-Lago resort, it has seen its membership fee double to $200,000 since Trump took office. Shortly after the fee hike was revealed, Barack Obama's former ethics lawyer said the increase is a "not very subtle exploitation of the fact that the club's figurehead is now president of the U.S." Forbes estimates the "winter White House" is now worth $160 million, $10 million more than pre-election.

Some of the profiteering is even more direct: Trump immediately launched his reelection campaign on the day he assumed office. Donor money has continually flowed since then, and America's first billionaire president turned more than $900,000 into personal revenue.

And we can't forget Trump's signature 2017 tax reform legislation, which will also clearly benefit the president. Forbes says Trump could save about 10% on business income, which based on his leaked 2005 tax return, could mean as much as $11 million annually.

Aerial view of Mar-a-Lago, the estate of Donald Trump, in Pa

However, becoming president has had its drawbacks for the businessman.

While his 2016 campaign's controversial marketing strategy helped Trump leverage media coverage to benefit his commercial properties and projects, Forbes reports that, so far, mixing politics and business has hurt him more than it has helped.

By some calculations, Trump's net worth has dropped from $4.5 billion in 2015 to $3.1 billion in the last two years, dropping the president 138 spots lower on the Forbes 400. In regards to Trump Tower, the net operating income dropped 27% between 2014, the year before Trump announced his run for president, and 2017, his first year in the White House.

In refusing to divest his tax returns, Trump has set himself up to be accused of perpetual conflicts of interests that may or may not be true. Forbes' suggests that Trump would be $500 million richer if he had liquidated his assets, paid capital gains tax on his fortune and created a blind trust to invest it all in the stock market.

At the end of the day, Trump has made money off the pedestal he's been given. However, he may have made more—and been better perceived—if he had thrown in the towel altogether.

Joshua Smalley is a New York-based writer, editor, and playwright. Find Josh at his website and on Twitter: @smalleywrites.


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