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Do You Have to Pay Taxes If You Are Unemployed?

Do You Have to Pay Taxes If You Are Unemployed?

The unemployed still have to pay taxes, even on unemployment benefits. Here’s what to report and how.

Whether or not you have to file a tax return has nothing to do with your employment status. It depends entirely on how much income you received during the year.

If your income falls above the income threshold for your filing status, you have to file a tax return. Unfortunately, it doesn’t matter to the IRS if you happen to be out of a job. For 2012 taxes, the filing threshold is $9,750 for single filers and $19,500 for married couples filing jointly.

The unemployed should note, however, that unemployment benefits do qualify as taxable income, counterintuitive as that seems. So, for example, if you are a single person who received more than $9,750 in unemployment benefits, you owe Uncle Sam tax on that income.

According to the IRS, unemployment compensation includes

Any amounts received under the unemployment compensation laws of the United States or of a state. It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It also includes railroad unemployment compensation benefits, disability benefits paid as a substitute for unemployment compensation, trade readjustment allowances under the Trade Act of 1974, and unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974. Unemployment compensation does not include worker’s compensation.

Unemployment benefits will be accompanied by Form 1099-G [Certain Government Payments], which should show exactly how much you received. This is the number that must be entered on your tax return. The IRS already knows you received this money, so don’t try to hide it or you could face an audit as well as penalties and interest.

When you file your return, report your unemployment income on line 19 of Form 1040 [U.S. Individual Income Tax Return], line 13 of Form 1040A [U.S. Individual Income Tax Return], or line 3 of Form 1040EZ [Income Tax Return for Single and Joint Filers with No Dependents], depending on which tax return you decide to file.

But before you get too exasperated, you should know that unemployed people stand to benefit from filing a tax return. A number of tax credits are available that could result in a pretty large refund for those who don’t make very money, including the

Earned Income Credit
Additional Child Tax Credit
American Opportunity Credit
Credit for Federal Tax Paid on Fuels
Adoption Credit
Credit for Prior Year Minimum Tax
Health Coverage Tax Credit

If you’re unlucky enough to be unemployed, you probably will have to file taxes, but there’s no reason to fear the tax man – the progressive U.S. tax code tends to be pretty generous to those with low incomes.

Photo via Cea. on Flickr.

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One Response to “Do You Have to Pay Taxes If You Are Unemployed?”

  1. Alison says:

    is the deadline to file taxes on eginrnas made in 2006. Your employer should withhold taxes each paycheck (based on a calculation from your W4 form that they will provide you with). In January of 2008, you employer will provide you a statement (form W2) which you will use by April 15, 2008 to file a form 1040 (or 1040a or 1040ez) to even up what you actually owe and what was withheld during 2007.

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