Can I Still Collect Unemployment Benefits If I Got Money Back on My Tax Return?

That tax refund can help you through a jobless stint, and should not affect your unemployment benefits.

That tax refund can help you through a jobless stint, and should not affect your unemployment benefits.

Unemployment insurance should cover you if you're laid off or lose your job through no fault of your own. The benefits continue as long as you continue to look for work, up to a deadline set by state and federal law. You must declare any income -- earned or unearned -- to the unemployment office while you receive benefits. Tax refunds are a return of your own overpayment of taxes and are not considered income of any kind.

Qualifying for Unemployment

The unemployment insurance program pays benefits to workers who have lost their jobs but are actively seeking new employment. State laws govern eligibility, payments and any limits on your income and assets. When you apply, you will be asked about other sources of income, such as self-employment or Social Security benefits.

Collecting Benefits

You collect regular benefits as long as you remain qualified. You have to certify regularly that you are searching for work and that you are able physically to keep a job. Most unemployment offices require you to provide job search information. They also require that you report unearned income, such as workers' compensation payments, lottery winnings and gifts from relatives. They don't require you to report federal or state tax refunds, since refunds are a return of your own money and not a form of income.

Reportable Income

Each state has a formula that it applies to income you receive, and makes a determination on your eligibility based on that income. In Minnesota, for example, you must report severance pay or vacation pay from your former employer, as well as pensions, Social Security benefits and workers' compensation indemnity benefits. If you draw money from an IRA or 401(k), that also must be reported.

Income Tax Withholding

Unemployment benefits are taxable. When you apply for unemployment, fill out Form W-4V, which sets the amount of income tax withholding from your benefit check. This form is to set up voluntary withholding from a public benefit check. If you file it, the unemployment office is required to withhold 10 percent of your benefit for taxes -- no more, no less. You must declare unemployment benefits on your tax return and figure them into your gross income. If you don't have enough withheld, you might owe money to the IRS instead of collecting a tax refund.

 

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