Less Income, Yet Taxes are Due

Today TaxMama hears from Felicia who is upset. “My mother and I bought a home two years ago; but both of us lost our jobs and are on unemployment. For some reason, when she was doing her taxes with her tax lady, my mother ended up owing almost $1,000.00. Why would that happen if she has been unemployed and makes substantially less money, is in the middle of a loan modification and is nearly bankrupt? She is making way less money than last year!”

Dear Felicia,

I know it’s a shock. And it always happens like this. Unfortunately, that balance due is perfectly reasonable – and will probably happen to you, too, when you prepare your tax return for last year.  Why?

When you have a job, even with much higher income, you have withholding.

For some reason, people really don’t seem to understand that unemployment income is taxable. It is taxed by both IRS and most state tax agencies. (California does not tax unemployment – yet.)

The information is provided by the agency, along with the paperwork paying you. You are given the option of having taxes withheld. Most people don’t bother, thinking it won’t be that much money, so they won’t owe any taxes. The balance due, when you finally file  your tax return can be a real wake-up call.

Add in the fact that you probably didn’t make all the mortgage payments so your deductions are lower than you had planned – and that ensures you will owe tax money.

If you and your mother are still collecting unemployment, consider having taxes withheld now. Nearly half the year has passed. You’re apt to be in trouble again next year.

If you can’t pay your balance due, here are some options to help you, from IRS.  Also, keep an eye on the Equifax blog in July. I reveal a secret about how to stall IRS that only the pros know!

And remember, you can find answers to all kinds of questions about taxes due and other tax issues, free. Where? Where else? At www.TaxMama.com.

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