Today TaxMama wants to discuss unemployment issues. Too often I learn during tax season, that a client didn’t work and didn’t collect unemployment insurance, or other compensation to which they were entitled. This especially true of folks who are not comfortable with English. Since we’re heading for a season when many people’s jobs may end…
Earlier, during tax season, I learned a surprising fact. Most states tax the unemployment insurance benefits they pay you. That was utterly shocking, since that’s one of the few things California does not tax.
Naturally, IRS does tax the full amount of the benefits. Though, last year we had a brief break, with the first $2,400 being tax-free.
Whether benefits are taxable or not, you need income. So, as soon as you learn you are about to be laid off, or the minute you are laid off or fired – immediately file for unemployment benefits. Most states have a waiting period once you file. So the sooner you file, the sooner you get paid.
If you are underemployed and get work sporadically from your job or union, file for unemployment at the beginning of the season (summer, for instance). Once you’ve used that waiting period, you generally won’t be penalized again, if you work for a few days, then have no work for several more. Just be sure to report the income you earn while you are working.
If you’re not well, and are unable to work, head for the doctor immediately. Get paperwork to verify that you are ill, or temporarily disabled. I was shocked when a client told me her husband was out of work due to his heart condition and they never filed for disability benefits. They really needed the money – and threw away over $3,000!
Great news! State disability benefits are not taxed by IRS, and probably not by your state either. Also, there is usually no waiting period to collect disability. In most states, when you do file for benefits, if you file after you’ve been ill for a while or hospitalized, the benefits are retroactive to the beginning of your illness (this year). And to top it all off, you don’t have to prove you’re looking for a job!
So, do you feel a headache coming on?
And remember, you can find answers to all kinds of questions about being unemployed and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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