I tried to input the numbers you provided in the above discussion and created a test case to see the impact of adding Unemployment Benefits on the tax refund. The reason your refund reduced was not because your Unemployment Benefits were being taxed at a higher rate. The Earned Income Tax Credit which you were receiving was reduced because after you added the Unemployment Benefits, your income increased causing the Earned Income Credit to go down. The maximum Earned Income Tax Credit for 1 child is $3,618 and as you start adding more income the Earned Income Tax Credit starts to reduce.
In this scenario, since Unemployment Benefit is considered Income for the calculation of Earned Income Tax Credit, your refund is reducing. Additionally, since no tax was withheld on the Unemployment Benefit, that is also a factor in the reduction of the refund
Additionally, you can view your entire return or just your 1040 form before you e-file:
- Open or continue your return.
- Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
- With the Tax Tools menu open, you can then:
- Preview your entire return: Select Print Center and then Print, Save, or Preview This Year's Return (you may be asked to register or pay first).
- View only your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu. This will allow you to view your 1040 form without paying.
