Taxes on Unemployment

[GeorgeParker]

Really? Here in IL, my state unemployment was $384/week. I was very fortunate to get the $600/week.

If all you’re getting is $384/week, do you really think people are going to put aside money for taxes if they’re worried about paying rent and such?

I too have been unemployed, and I got less than $348 per week. Given a choice between withholding or not withholding. I chose to not withhold because I'd rather earn interest on that money instead of lending it to the government for free.

My opinion has nothing to do with the extra covid unemployment payments. I'm talking about the smart thing to do with any income where you have the option to withhold or not withhold taxes.

It is always better to receive interest than to loan money to someone for free. Period. If a person doesn't have the willpower to stash that tax money in a savings account, then to thine own self be true and let the government withhold it. But that isn't the smart thing to do.

As far as people with small unemployment checks needing to have the income tax withheld because if they have it in their hand they'll probably spend it instead of saving it: Which is better: to buy food and pay your rent, or to give the government an interest-free loan and go hungry?

Imho it is better to have enough money to pay rent and buy food and pay for other necessities, even if you end up owing more income tax than you can pay and having to pay the relatively low interest rate the IRS charges you for not paying your taxes on time.

To be clear about my intention: When you say "Anyone who is smart about it will have the taxes taken out" what that really means is anyone who doesn't have income tax withheld is being dumb. Well, I am not dumb, and imho it is smarter to not have income tax withheld if you have that option. YMMV

[happystuff]

I too have been unemployed, and I got less than $348 per week. Given a choice between withholding or not withholding. I chose to not withhold because I'd rather earn interest on that money instead of lending it to the government for free.

My opinion has nothing to do with the extra covid unemployment payments. I'm talking about the smart thing to do with any income where you have the option to withhold or not withhold taxes.

It is always better to receive interest than to loan money to someone for free. Period. If a person doesn't have the willpower to stash that tax money in a savings account, then to thine own self be true and let the government withhold it. But that isn't the smart thing to do.

As far as people with small unemployment checks needing to have the income tax withheld because if they have it in their hand they'll probably spend it instead of saving it: Which is better: to buy food and pay your rent, or to give the government an interest-free loan and go hungry?

Imho it is better to have enough money to pay rent and buy food and pay for other necessities, even if you end up owing more income tax than you can pay and having to pay the relatively low interest rate the IRS charges you for not paying your taxes on time.

To be clear about my intention: When you say "Anyone who is smart about it will have the taxes taken out" what that really means is anyone who doesn't have income tax withheld is being dumb. Well, I am not dumb, and imho it is smarter to not have income tax withheld if you have that option. YMMV

Glad this method works for you! But please remember that everyone isn't you and it may not be what others consider their best method at the time they are deciding.

[GeorgeParker]

Glad this method works for you! But please remember that everyone isn't you and it may not be what others consider their best method at the time they are deciding.

This thread is a conversation in which people are expressing opposing opinions on the topic of income tax withholding. I enjoy such conversations because I believe in free speech and I enjoy openly discussing opposing viewpoints so that people can decide for themself what to do. Nothing I have said in this thread has in any way implied that anyone has to do it my way. All I've done is politely express my opinion that not withholding is smarter than withholding. Sorry if you don't see it that way, but my opinion is what it is and I reserve the right to politely try to convince other people that I'm right.

[jp1]

The reality is that for different people different choices in this situation will make sense. If one is living "on the edge" financially it may be reality that they need to not have tax withheld from unemployment because they need that money to pay the rent and buy food. They won't be setting aside money for the inevitable taxes which is not great because they'll have a big tax payment come due the following April. But starving or being homeless is also not a great option so perhaps choosing the "least worst" option makes sense for them. Others may know themselves well enough to know that if they don't have taxes withheld they will fritter away the money and also have a big tax payment come due. And still others will have sufficient control over their finances and also enough of a stash that they can not have taxes withheld, invest that money, and easily make the tax payment in April. None of these people are dumb or smart, they are making a decision based on their personal situation. The only situation where someone would be acting "dumbly" would be someone who didn't need the extra money, but still chose to not have taxes withheld and then frittered it all away on gazingiss pins or other non-essentials and didn't have the money to pay the taxes when April rolled around.

[Teacher Terry]

George, we debate stuff all the time on this forum. There’s very little interference from the moderators.

[ApatheticNoMore]

I've collected unemployment twice in my life (there was also a time I was unemployed and wasn't eligible as I quit - a bad situation I quit but). It has never been enough to live off of (hahaha you have to be kidding - possibly if I had gone without health insurance it would be closer to enough and still fall short. Yea unemployment it helps, but you can't live off it).

So both times I lived off unemployment plus savings. So taking a bit more out of savings or getting the bigger unemployment check without withholdings, the bigger unemployment check maximizes interest. But big tax bills are pretty stressful so I try to avoid them and interest rates are low and have been for ages especially in recessions (it's still interest so it still makes sense to try to get more, it's just not much).

[GeorgeParker]

The only situation where someone would be acting "dumbly" would be someone who didn't need the extra money, but still chose to not have taxes withheld and then frittered it all away on gazingiss pins or other non-essentials and didn't have the money to pay the taxes when April rolled around.

That's the most intelligent and reasonable thing I've read in this thread. Thank you. I agree completely and wish I had said it.

[iris lilies]

The reality is that for different people different choices in this situation will make sense. If one is living "on the edge" financially it may be reality that they need to not have tax withheld from unemployment because they need that money to pay the rent and buy food. They won't be setting aside money for the inevitable taxes which is not great because they'll have a big tax payment come due the following April. But starving or being homeless is also not a great option so perhaps choosing the "least worst" option makes sense for them. Others may know themselves well enough to know that if they don't have taxes withheld they will fritter away the money and also have a big tax payment come due. And still others will have sufficient control over their finances and also enough of a stash that they can not have taxes withheld, invest that money, and easily make the tax payment in April. None of these people are dumb or smart, they are making a decision based on their personal situation. The only situation where someone would be acting "dumbly" would be someone who didn't need the extra money, but still chose to not have taxes withheld and then frittered it all away on gazingiss pins or other non-essentials and didn't have the money to pay the taxes when April rolled around.

I think most of us can name several people in our sphere who use their government IRS refund as a savings account. Or view it as a windfall. It is not at all unusual.

[happystuff]

This thread is a conversation in which people are expressing opposing opinions on the topic of income tax withholding. I enjoy such conversations because I believe in free speech and I enjoy openly discussing opposing viewpoints so that people can decide for themself what to do. Nothing I have said in this thread has in any way implied that anyone has to do it my way. All I've done is politely express my opinion that not withholding is smarter than withholding. Sorry if you don't see it that way, but my opinion is what it is and I reserve the right to politely try to convince other people that I'm right.

Same here, so go for it.

Edited to add: except for the "try to convince other people that I'm right". In my opinion, expressing my opinion and listening to others' opinions is an exchange, a conversation; I try my best (admittedly not always successful - but I'm trying!) for it not to be an "I'm right and you're wrong" issue.

[GeorgeParker]

except for the "try to convince other people that I'm right". In my opinion, expressing my opinion and listening to others' opinions is an exchange, a conversation; I try my best (admittedly not always successful - but I'm trying!) for it not to be an "I'm right and you're wrong" issue.

Whether it's a discussion of plan-A vs plan-B, or where to eat lunch, or which method is the best way to do something, every conversation that involves two different opinions is an effort by each person to convince the other person that they're right. If you don't think you're right or if you don't think you can get the other person to consider the possibility that you're right, then there's no point in having the conversation.

Often a conversation will result in two people finding a common ground where their opinions overlap, but just as often the conversation will end with one person saying "Obviously we disagree about this" and changing the subject. Both results are ok.

IMO 25% of what I know is either stuff I learned from research I did in order to defend, or try to defend, something I believed, or it's based on valid arguments that someone used to refute my beliefs during a casual conversation. And that is how it should be.

If what you believe isn't worth defending, why waste time talking about it?