Should I be paying unemployment tax at the federal earned income tax rate or the federal witholding rate of 10%?

[shaqcole90]

Turbo tax is calculating my unemployment rate at 30.54%. Thats $2,799 of $9,171. I think that's way too much considering you don't need to pay social security, medicare or state tax(california) on unemployment benefits.

[Hal_Al]

Your question is not clear.

I assume by "unemployment tax" you mean income tax on your unemployment compensation (reported on form 1099-G).  There is no earned "income tax rate" nor a  "federal withholding rate of 10%".

There are just tax brackets  of 10%, 12%, 22%, 24%, 32%, 35% and 37%.  Income is either taxed as ordinary income (both earned income and unemployment  are ordinary income) or as long term capital gains  ("qualified" dividends are also treated as capital gains).

Unless you're somebody's dependent, your first $12,550 of income is not taxed at all. The next $9950 is taxed at 10%.  After $22,500 the tax rate is 12%. 

As your surmise,  30% is wrong.  You've entered something wrong.  The most likely explanation is you've entered it a self employment income and TurboTax is calculating both income tax and self employment tax (SET).  SET is how the self employed pay their social security and  medicare tax.

[SweetieJean · Accepted solution]

Although the default Federal tax withholding rate on unemployment comp is 10%, the actual tax is calculated based on your marginal tax rate.

Had you already entered your other 2021 income; and then when you entered the U/E comp, your taxes went up a lot?  Any time you add income, some of your deductions/credits can go down.  Did you also collect Social Security?  More of it may become taxable when you add any other types of income.

[shaqcole90]

Thanks for the quick response 👍.

I believe I had already entered my w2 info

prior to entering my UE income. Does this mean I start over? Also,no social security income was entered. 

[shaqcole90]

So I definitely didn't enter anything wrong. Maybe turbo tax is miscalculating. Upon answering turbo taxe's questions in the order I was asked, I watched my federal refund drop by $2,799 after submitting my 1099-G form ($9,171 no tax withheld) . I filed Head of Household with 3 dependents- 1 of which is a child and my total income for the fiscal year was 36k (UEB included). The total amount of federal tax withheld from my wages on my W2 was $2,131 although the total amount of tax withheld was $5,278.74 (Not FIT). I also entered a dependent care expense amount of $2500. My federal refund total now sits at $9,145. I guess my question now is if TurboTax miscalculated, do I start over and enter the info in a different order?

[Hal_Al]

I would review the forms to see if everything is where it should be.

[SweetieJean]

The order in which you enter the income doesn't matter; only the end result does.  

[shaqcole90]

Again if so, that would be a TurboTax miscalculation correct? Or software issue? I definitely don't input the information on the forms lol. I simply answer questions that I'm asked. If it's found to be miscalculated, what is my next step?

[VolvoGirl]

You should not look at the Refund Meter until you are done entering everything.  Unemployed adds to all your other income and is taxed the same as W2 or 1099R, etc.  income .  The tax is figured on your total income.  It is not broken out.  Unless you have stock sales or capital gains.  Those get taxed at a different rate.  And adding more income may push you into a higher tax bracket. 

If you didn't have  withholding taken out of the unemployment you will owe tax on it unless you have enough W2 withholding and credits to cover the tax on all your income.  

[shaqcole90]

Right, well I just thought that $2,799 was a bit much after adding another $9,000 to the return in income. I definitely made sure to complete the return all the way to the end. Somebody else already said that 30.54% was a wrong calculation for unemployment income, which I agree. Edd seems to think that it should be approximately 10%. When I look it up, I read that you don't pay social security, Medicare, or state tax on it UEB. The amount of tax I pay for the whole year is only 19.07% on my W2. I'm just saying something really doesn't look right lol. I'd like to know what can be done about it if it really is wrong? How would I fix it?

[VolvoGirl]

Nothing is probably wrong.  The 10% was just the withholding amount you could have had taken out.  It is not the actual tax or rate.  It was just for withholding like from your paychecks.  The unemployment increased your total income so your tax is higher.  More Income = more tax.  Then any withholding and any credits are subtracted from the Tax leaving you with a Refund or Tax Due.  And by adding more income it might have reduce some credits you were getting.  

Look at your return.  What lines don't you understand?  Compare it to last year.  Be sure to review your return before you file!  Before filing you can preview the 1040 or print the whole return
https://ttlc.intuit.com/community/accessing/help/how-do-i-preview-my-turbotax-online-return-before-f...

[shaqcole90]

At a total income of 36k I couldn't be in that high of a tax bracket. Especially if it's 12% just after $22,500. I admit I may not be asking the right questions to get the answers I'm seeking but what I'm basically saying is. I don't get it, something doesn't seem right. If it's not right how do I find out and what can I do to fix it? 

[shaqcole90]

Yeah I checked that, none of my credits were reduced after entering form 1099-G.  Just a deduction of $2,799 from my refund.

[shaqcole90]

Another thing that keeps puzzling me is when I look up how much the government charges in taxes for unemployment, I keep getting answers around 10%. Can you submit a form that states that UEB is 30%? Or is it just TurboTax that calculates that amount?

[AamilD]

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:

1. Open or continue your return.
2. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
3. 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.