People are often under the impression that unemployment benefits are not taxable. On face value you’d think that public benefits for unemployment that help you to try to get by would not be taxed. But you’d be wrong.
If you were paid unemployment benefits in 2011 and did not opt to have taxes withheld from your benefits, you’ll have to get ready to pay the potential tax bill coming due.
It seems that in previous years up to $2,400 in unemployment benefits was not taxed but Congress neglected to continue that provision. Yep, let’s tax people when they are down.
If your overall income was low in 2011 then you might qualify for the Earned Income Tax Credit.
If you made less than $49,078 then check to see how much of a tax credit you can receive by using this online tool.
For tax year 2011, the maximum credit amounts are:
$464 with no qualifying children
$3,094 with one qualifying child
$5,112 with two qualifying children
$5,751 with three or more qualifying children
Free Tax Help is Available
If you made less than $50,000 last year, free tax help is available through the Volunteer Income Tax Assistance Program. Additionally you may be able to file your taxes online for free using FreeFile.
Found Yourself Owing Taxes
If you find that you owe surprise taxes to the IRS, the good news is that once you file your tax return there are installment plans available to help you make the payments due. More information about setting up an installment payment can be found online here.
If you think an installment payment plan with the IRS is the right way to go then you can start right now using this link.
It might feel like a slap in the face to owe taxes from your unemployment income but being upset about it isn’t going to help you to remedy the problem. Filing your taxes and getting on an installment plan will.
If the amount you owe, even on a payment plan, is too much for you to pay you might just have to look at discharging your other obligations through a consumer bankruptcy to make room for the tax payment.

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