Many people here in Boston are among the millions of people across the country who are not working right now. Those fortunate enough to receive unemployment benefits are also receiving an extra boost from the federal government to make those payments go further. However, anyone in this position should know that the IRS and the state of Massachusetts tax those benefits, and they need to be prepared for that.
There is some good news. Recipients will not need to pay Medicare or Social Security taxes on the benefits they receive. Many Boston residents will need to file a tax return including this money. However, the normal rules apply to who will need to file a return and who will not need to. In any case, it is possible to avoid a hefty tax bill when the time comes to file next year.
Individuals can decide to have taxes withheld from their unemployment benefits in order to lessen the amount of taxes owed on them. Another alternative is to make quarterly payments instead, but they need to be properly calculated in order to avoid penalties at tax time. Those who decide to not have any taxes taken out of their benefits may find themselves in a precarious position next year.
Determining the best way to handle taxes on unemployment benefits will most likely raise numerous questions and concerns. While most people need the money right now, it would still be a good idea to look to the future as well. Conducting some research and crunching some numbers would probably be the best way to decide what would work best for a particular individual’s circumstances. The important thing to remember is that the IRS will be expecting some payment — one way or another.