It's tax time, and workers who collected unemployment in Wisconsin in 2012 are wondering whether they owe any taxes on their benefit payments. In short, they do. In 2009, the first $2,400 of unemployment insurance payments was exempt from federal income tax. The reprieve was only temporary, however. Like most sources of income, all unemployment payments have been taxable at both the state and federal level in Wisconsin since 2010.
So, what do you do if you received unemployment payments in 2012? The Wisconsin Department of Workforce Development will report all of your unemployment insurance benefits to the IRS each year. You should receive a 1099-G form for your benefits, which must be mailed to your last known address on file with the UI Division no later than February 1. If you haven't already received a 1099-G, look for it in the mail this weekend. If you've recently moved and you are receiving direct deposit payments, make sure your address is updated with the Unemployment Insurance Division to insure you receive your tax forms.
It's your choice whether or not to have income taxes automatically withheld from your weekly benefit payments, and you must complete an online tax withholding application if you'd like taxes withheld. In Wisconsin, if you choose automatic weekly withholding, the rates of withholding are 10% of the amount payable for federal taxes, and 5% for state taxes. It's recommended that you consult with a tax attorney, CPA, or qualified tax professional to determine whether you should have taxes automatically withheld from your weekly unemployment payments.
Watch Attorney McLeod in a PBS special about unemployment insurance here.