Do You Claim State Unemployment on a State Return in Alabama?
In most states, recipients of unemployment may withhold both state and federal taxes from their benefits. Alabama is an exception. Although the Alabama Department of Industrial Relations specifically states that unemployment benefits are fully taxable, only federal taxes may be automatically deducted from benefit payments. According to the Alabama Revenue Department's Form 40, unemployment compensation is not declared on the Alabama state tax return.
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Unemployment Insurance in Alabama
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The state of Alabama has one of the lowest levels of unemployment compensation in the nation. In 2009, according to File Unemployment.com, the state of Alabama paid less than $300 per week for full benefits. In comparison, the commonwealth of Massachusetts paid nearly $800 per week for maximum unemployment claims. States like Georgia pay slightly more than Alabama, but also do not require unemployment income to be taxed at the state level.
Unemployment and Federal Tax
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According to the Internal Revenue Service, unemployment benefits from any and all states are fully taxable at the state level. Many states, including Alabama, allow unemployment recipients to have federal tax withheld from their benefit checks before receiving them. The federal amount of withholding is ten percent. Unemployment recipients should seriously consider having federal taxes withheld automatically from their benefits in order to avoid unexpected tax levies and even fines at the end of the tax year.
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Unemployment and Estimated Tax Payments
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Although the state of Alabama does not require state and federal taxes to be withheld from unemployment benefits, not doing so can be more difficult. If an unemployment recipient elects not to withhold taxes, he must then make quarterly estimated tax payments to the IRS in April, June, September and January. if the tax is underestimated for any given quarter and goes unpaid, the unemployment recipient could face a tax penalty. These tax penalties can be as much as $500.
Considerations
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Unemployment recipients in Alabama can expect to receive benefits for up to 26 weeks. Some extensions for benefits may be approved. According to Unemployment Benefits.org, the state of Alabama paid from $45 to $255 per week in benefits. If a recipient receives benefits for the full 26 weeks, the gross income is $6,630. The Internal Revenue expects to receive 10 percent of this gross income, which would be approximately $663, or $331.50 for each of the two quarters in which benefits are received. For individuals who are already struggling financially, coming up with a lump sum payment of $331 may be difficult. Withholding federal taxes is easily done through the Alabama unemployment offices and can save financial distress in the long run.
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References
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