If you have received unemployment compensation this year, you should include it in your income for that year. To figure out if your unemployment has been taxable, see Can Unemployment Compensation Be Taxed? For more information on unemployment, see Unemployability Laws and Tax Laws for Individuals. You will also be expected to make quarterly estimated payments as part of your eligibility to receive unemployment benefits.
Because an unemployment claim is filed with the state authorities, the tax status of the claim may be uncertain. For example, the amount of unemployment compensation claimed may not be taxable because of an exemption provided by the Internal Revenue Code or other applicable tax laws. The claim might be eligible for an additional tax credit if it covers an unreimbursed medical expense.
Certain taxes, including Social Security and Medicare taxes, are not refundable. However, federal unemployment insurance benefits, such as Federal Old-Age and Survivors Insurance (FOSSI) are tax-free. Your employer will be reimbursed for up to an amount equal to the amount that would be deducted as income for the year if FOSSI were being claimed on your return.
Some disability benefits, such as Workers’ Compensation, can be taxable. When you file an application for disability benefits, it is important that you include all the necessary documentation for you to properly prove the disability. In some cases, if the claim is made for a work-related condition, such as back pain due to lifting a heavy object, this condition is not likely to qualify for a workers’ compensation claim.
The value of your personal property and household items are not deductible when calculating the tax-free limit. Items such as jewelry, art, antiques, and collectibles are not taxable because they are considered investment items. You should include any items, such as clothing, which you plan to sell, on your inventory list. In addition, the value of your automobile and boat will not be taken into consideration when computing the total of your income for the year.
It is possible that the state may require you to report an additional income if you are unemployed for an extended period of time. This income is called “unduplicated” income. This income may also need to be reported if you have received unemployment benefits but have not yet begun to use them. This type of income is taxable if you have not already used up the maximum unemployment benefits allowed.
Income you earn on a basis that is subject to taxation is taxable; however, any earnings on a basis that is not subject to taxation may be excluded from your gross income for tax purposes. For example, if you worked as a teacher for a public school district and paid a specified amount for each hour you worked, you may have to include this amount as wages when you calculate your income for tax purposes. If your job was part-time, you may have to report only the part-time wages.
There are other sources of tax relief available to those who want to reduce their tax liability. Many states allow a refundable Earned Income Credit (EIC) on your annual income tax return. Other states allow deductions on a property tax return that is claimed on a regular basis. You can obtain a detailed list of these credits on the IRS website.
Because tax laws vary from state to state, it is best to consult with a tax professional for advice on how to properly file your state income tax return. Your local tax office can provide you with valuable information and resources for filing your tax return.
Because there is so much more involved in income tax than simply determining what the state limits are, you should consult with a tax professional before you file your return. A tax professional will be able to help you with tax planning and advise you on how to reduce your taxes and maximize your tax benefits. If you have any questions about the tax law or your refund options, you can call your local tax office.
The unemployment compensation program is designed to provide tax relief to those who need assistance in the time of need. Tax relief will increase the amount you can afford to borrow against your home equity or pay down the mortgage debt and may qualify you for tax benefits that are available to you through your employment tax benefits.