3 Reasons to Withold Taxes on Your Unemployment Benefits

When you receive unemployment benefits, you are receiving a form of income from the Federal government. Since this is income, you will owe taxes on it. However, the government will not automatically withhold the taxes you owe. It is up to you to do so. It is in your best interest to make this adjustment for a few reasons.

#1 Pay as You Go

The Internal Revenue Service (IRS) operates on a pay as you go system. This means you have to make regular payments instead of waiting until year's end by law. You must make quarterly estimated contributions with each paycheck.

#2 Penalties

If you fail to make regular payments, the IRS will penalize you accordingly once you file your taxes. Since your unemployment checks are a government benefit, there is no hiding the income you have received. It will be reported for you, and you will owe the tax plus the penalty if you have not made regular contributions.

#3 Complications

It is far more complicated to total your taxes at the end of the year and make a lump sum payment than make regular contributions. To keep things simple, estimate your tax bracket using a tax rate schedule, and pay the estimated percentage you will owe each week or month.

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