 TITLE: Do You Have to Pay Taxes on Unemployment Benefits? CONTENT: How to Prepare for Income Taxes\n-------------------------------\nKnowing that you may have to pay income taxes on your unemployment benefits, you can choose from several options to help make the payments more manageable.\n*   **Request tax withholdings.** When you were working, your company may have withheld money for taxes and made those payments on your behalf. You can also ask your state to do the same with your weekly unemployment benefits. It will withhold 10% of your unemployment pay, which it will send to the IRS. You may also request state or local tax withholdings if they apply to you.\n*   **Pay estimated taxes.** Another option is to make estimated tax payments to the IRS and your state tax agency every quarter. Depending on how much unemployment you collect, and what other sources of income you have throughout the year, you may want to do this even if you have money withheld from your benefits. If you wind up owing more than $1,000 in income taxes, you may have to pay an additional underpayment penalty.\n*   **Set money aside.** You could choose to keep all your unemployment benefits if you don't expect to owe any taxes. Or, even if you expect to owe a little, you could still keep the money and set a portion aside in a savings account in case there's an emergency in the interim. An income tax calculator could help you estimate how much you'll want to set aside.\nIf you pay too much in taxes now, you'll get the overpayment back when you file your tax return later. Even if you aren't required to file a return next year, you should file one if you had any money withheld from paychecks or unemployment benefits so you can get that money refunded. END