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Thread: Do I need to send estimated tax payments this quarter? [unemployment checks taxable]

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    Veteran Member jadelady's Avatar
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    Default Do I need to send estimated tax payments this quarter? [unemployment checks taxable]

    ***Edit: Resolved. I don't need to send any estimated tax payments this year!***

    Here's my situation.

    I received unemployment benefits for January-March 2010, and for the past 3 weeks I've been receiving income as an independent contractor for webcam shows on a host site. My income so far isn't taxable, as far as I understand.

    Do I need to send any estimated payments?
    I don't have the money yet to buy some business tax software nor to talk to the tax help lady mentioned here so I hope someone here can help me.

    Also maybe should I mention here I had no tax liability last year due to my extremely low income? I don't know if that has anything to do with it.
    Thank you.
    Last edited by jadelady; 04-07-2010 at 01:12 PM. Reason: resolved issue

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    Banned Melonie's Avatar
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    Default Re: Do I need to send estimated tax payments this quarter?

    (snip)"Yes, it's true. Your unemployment benefits are taxable.

    Under tax law, unemployment is considered wage income and the IRS wants a cut of every type of income you collect.

    Now that you're over the shock and anger, what can you do?

    If you get laid off, when you apply for unemployment benefits consider having federal income taxes withheld. This process is similar to the payroll withholding you encounter when you collect a paycheck. In this case, the form you fill out is the federal W-4V, Voluntary Withholding Request, or a similar, IRS-acceptable document that the paying agency has created. This way, taxes will be withheld at the rate of 10 percent of each unemployment payment.

    However, since unemployment compensation is usually less (and sometimes a lot less) than your former paycheck, most people decide against having taxes withheld. This means you get your full unemployment check to use toward day-to-day expenses. But it also means you'll owe the IRS when you file your next income tax return."(snip)

    from

    thus if you have not had income taxes withheld from your unemployment checks, by April 15th you need to send in an estimated tax payment covering both your unemployment check income AND your webcam income for the time period between Jan 1 and April 1. Wild guesswork would lead to a federal estimated tax amount somewhere around 10% of your combined unemployment check plus webcam income ( Social Security / medicare taxes alone are 7.65% ). Since you didn't list your particular state of residence, and different states have widely differing tax rates, I can't guess at a percentage for state estimated taxes.

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    Veteran Member jadelady's Avatar
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    Default Re: Do I need to send estimated tax payments this quarter? [unemployment checks taxab

    Okay thank you, that helps a little.

    Actually only a portion of unemployment benefits are taxable. And I don't think what I've received so far this quarter is over the limit, yet.

    I just looked at 1040-es.. I hope I can do this. I don't understand half of the instructions or terminology.

    Do I need to send this form to them or can I just send a payment?
    "Every experience is a lesson. Every loss is a gain."


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    Default Re: Do I need to send estimated tax payments this quarter? [unemployment checks taxab

    Quote Originally Posted by jadelady View Post
    I just looked at 1040-es.. I hope I can do this. I don't understand half of the instructions or terminology.

    Do I need to send this form to them or can I just send a payment?
    If you want to invite an audit, just send the payment. One of the major factors the service considers in deciding whom to audit is incomplete forms.

    HTH
    Z

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    Default Re: Do I need to send estimated tax payments this quarter? [unemployment checks taxab

    First $2,500 of unemployment is not taxable. Just report what you took in above that. I just did my taxes and this is what it says.

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    Veteran Member jadelady's Avatar
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    Default Re: Do I need to send estimated tax payments this quarter? [unemployment checks taxab

    Okay thanks for the tips.
    "Every experience is a lesson. Every loss is a gain."


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    Veteran Member jadelady's Avatar
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    Default Re: Do I need to send estimated tax payments this quarter? [unemployment checks taxab

    Good news - turns out I don't owe any estimated tax payments after all, since I had no tax liability in 2009.
    "Every experience is a lesson. Every loss is a gain."


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    Banned Melonie's Avatar
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    Default Re: Do I need to send estimated tax payments this quarter? [unemployment checks taxab

    ^^^ well a clarification is probably in order. Under a 'first year earnings' exception you may not be required to make ESTIMATED income tax payments in the first quarter of 2010 ... or for that matter all 4 quarters of 2010. However, this is not the same thing as not owing income taxes on your 2010 earnings. The only real difference is that if you don't make estimated tax payments throughout the year, when April 15th 2011 rolls around you will have to make a VERY large tax payment when filing your 2010 tax return.

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    Veteran Member jadelady's Avatar
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    Default Re: Do I need to send estimated tax payments this quarter? [unemployment checks taxab

    Quote Originally Posted by Melonie View Post
    ^^^ well a clarification is probably in order. Under a 'first year earnings' exception you may not be required to make ESTIMATED income tax payments in the first quarter of 2010 ... or for that matter all 4 quarters of 2010. However, this is not the same thing as not owing income taxes on your 2010 earnings. The only real difference is that if you don't make estimated tax payments throughout the year, when April 15th 2011 rolls around you will have to make a VERY large tax payment when filing your 2010 tax return.
    Well of course I know I'll owe income taxes come tax day.. that doesn't really have anything to do with what I was asking.

    My income tax will not be any higher, i.e. I will not owe a penalty for not sending estimated tax payments.
    No Tax Liability Last Year

    You do not owe a penalty if you had no tax liability last year and you were a U.S. citizen or resident for the whole year. For this rule to apply, your tax year must have included all 12 months of the year.
    You had no tax liability for 2008 if your total tax was zero or you were not required to file an income tax return.
    Example.
    Ray, who is single and 22 years old, was unemployed for most of 2008. He earned $2,700 in wages before he was laid off, and he received $2,500 in unemployment compensation afterwards. He had no other income. Even though he had gross income of $5,200, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($8,950 for 200. He filed a return only to have his withheld income tax refunded to him.
    In 2009, Ray began regular work as an independent contractor. Ray made no estimated tax payments in 2009. Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2009 because he had no tax liability in 2008.

    http://www.irs.gov/publications/p505...link1000207502
    "Every experience is a lesson. Every loss is a gain."


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