An unemployment tax refund is a great way to get money back on taxes that you’ve already paid. It’s also an opportunity for you to save money in the future by reducing your taxable income.
It doesn’t matter if you’re self-employed or someone who is paid by the hour for your work. You can enjoy unemployment tax refund benefits even if you are unemployed and looking for a job.
This blog post provides information on how unemployment tax refunds work, knowing if you qualify for one, and many more.
What Is an Unemployment Tax Refund?
An unemployment tax refund is a portion of the taxes you pay to your state’s Unemployment Insurance (UI) program.
If you’ve ever been employed and settled into this type of system, then it means that some money will be returned to you after all is said and done. It’s money that you’ve already paid out, but it’s now being returned to you.
It doesn’t matter if your employer or business was responsible for paying the premiums for this type of insurance. It is already included in your employment contract. If any portion of those taxes is still available after an unemployment claim, the state will return it to you.
Is unemployment tax refund deductible? Considerations for federal and state taxes
First, let’s define the sort of tax we’re discussing. At the federal level, unemployment is taxed for all beneficiaries. The amount you pay is determined by your tax bracket and the amount of taxable income you have.
That is dependent on the state tax. If you live in a state that does not have an income tax, you will not have to pay state taxes on your unemployment income. The handling of unemployment income differs by state in states that have an income tax. In Michigan, for example, unemployment payments are taxed, but in California, unemployment tax refund benefits are free from state taxes.
Are you also curious about the additional $600 in federal unemployment benefits provided by the CARES Act? Indeed, just like your state benefits, your unemployment income is taxed.
Do you pay unemployment income tax? When and how?
When you earn a wage from a job, you pay taxes through wage withholdings. The information you provide on Form W-4 tells your employer how much to deduct from your paycheck. In other words, you are gradually paying your taxes with each paycheck.
With unemployment income, you have the same option to withhold taxes, but it is not automatically applied. If you want to have federal taxes withheld, the rate is set at 10%. Depending on your circumstances, the sum may not cover all of your taxes, but you do pay income tax on unemployment as you go.
So, what are your choices if you didn’t set up withholding from the beginning?
- If you are still receiving unemployment tax refund benefits, you can begin withholding taxes by filling out Form W-4V and sending it to your state unemployment office.
- You can pay estimated taxes if you need to catch up. These payments can be made quarterly, providing you with an additional opportunity to account for your tax responsibilities throughout the year.
What’s the point of estimating taxes? For starters, there are penalties. You risk incurring an underpayment penalty if you do not pay taxes through withholding or anticipated payments. Also, you will have a higher tax burden come tax season.
How Much Money Can I Get Back?
The amount that you qualify for is dependent on your income. You can get a detailed background of your income through generated paystubs that your employer gives out every payment period. There’s no way to predict how much money will return in unemployment tax refunds until after it’s processed and calculated.
Sometimes, you can receive a lump-sum payment of your total refund. Other times, you may be allowed to set up an account to deposit money directly into, as they become available.
The best way to find out how much money you will be getting back and what the process involves contacting your state’s Unemployment Insurance Division.
How Can I Find Out if I Qualify for an Unemployment Tax Refund?
You should file for your unemployment tax refund as soon as possible if you think that you may qualify. Every state runs its program, and it varies between states, so there’s no “one size fits all” answer here.
However, one of the standard criteria for eligibility is that an individual must be earning less than $150,000 in adjusted gross income and if you received unemployment benefits in your past work. The first $10,200 worth of unemployment benefits will be excluded from the tax refund.
Some states will automatically send money into your bank account. On the other hand, in some cases, you’ll need to file an unemployment claim before you get the money because of a waiting period.
Common Mistakes People Make When Filing for Their Tax Refunds
As it turns out, people make quite a few mistakes when filing for their unemployment tax refund. Some of these include:
Not Keeping Records of Your Invoice or Tax Statements
Invoices or tax statements are some of the best ways that you can prove your claim. Invoices can include the total sales tax you paid as part of your employment contract. In many cases, you can get these documents from the billing department or accounts department where you work.
If you have them ready before filing for an Unemployment Tax Refund, then there won’t be any additional work or research required on your part.
Not Understanding What Happens During an Appeal
It’s important to understand what happens during an unemployment tax refund appeal. It can help you determine if you’re getting the right amount of money back.
Moreover, if you have been denied a portion or all of your money, then it means that you may not fall under the criteria of eligibility. However, once the state has made its final decision after an appeal, there is no going back from this point forward.
Not Including All of the Necessary Information
Filing for unemployment taxes can be very confusing. It’s important to understand what information you need and how it works to get your money back as quickly as possible.
Not including all the necessary information is another big mistake that can cost you a lot of time and money. The state needs to be able to verify your earnings, and if they cannot, this will result in an automatic denial of the claim.
The best thing that you can do is to file your claim correctly and as soon as possible. This means following directions exactly, supplying any required documentation such as proof of employment, and being patient while everything gets processed.
The last thing that you want to happen is for your unemployment tax refund application to get rejected. You should then follow the instructions that you’re given to file an appeal and hope for the best.
Does being laid off effect your tax return?
Again, the answer is yes; receiving unemployment will have an impact on your tax return. It depends on your situation how it impacts you.
These are a few examples of how unemployment income may affect your taxes:
Taxes owed/refund – As previously stated, paying taxes through withholding or anticipated taxes reduces what you owe at tax time and reduces the possibility of an underpayment penalty.
What effect does unemployment have on your tax refund? If you haven’t paid enough taxes, you may owe money when you file your tax return. If you paid too much throughout the year, you would receive a tax refund.
Forms that you get – If you are receiving unemployment tax refund benefits, your state will give you Form 1099-G at the end of January. This form will be used to complete your 2020 tax return.
Unemployment Tax Refund Benefits
Eligibility for tax credits – If your total income decreases as a result of receiving unemployment benefits, it may alter your eligibility for certain credits or the amount of credit you can get. For example, you may now be eligible for or receive more (or less) of the Earned Income Credit.
Furthermore, if you’ve lost your work, you may be eligible to acquire health insurance through the Health Insurance Marketplace. You may be qualified for the Premium Tax Credit depending on your income level.
What if you paid back some of your unemployment benefits? If you paid back unemployment money in the same year you got it, it can be used to offset what you received. If you repay it the next year, you will not be able to claim a tax advantage until your future year payback exceeds $3,000.
I’m not sure what that means. Consider Roland, who earned $2,000 in unemployment benefits this year but returned $1,500 before the end of the year. He’ll just have to pay taxes on the remaining $500 of unemployment income when he files.
An unemployment tax refund is a way for people laid off to recover some of the money they’ve already paid for in taxes. You can contact your state unemployment division to determine how much money will be available if you’re eligible for the refund and what steps need to be taken.