Tax Implications of the Increasing Welfare State

By Syreeta L. McNeal, CPA, JD

Recently, I prepared one of my clients’ tax returns for 2009. The individual received a significant amount of unemployment benefits and no income from employment. Unfortunately, the person had to pay the Internal Revenue Service (IRS) a large tax liability because the withholdings for unemployment benefits is significantly lower than if he/she would receive if employed in the private industry. In previous years, this individual received federal refunds because his/her withholdings were higher when the private industry employed the person.

This is a recent trend I am seeing in our great nation. The increasing dependence of American citizens on unemployment benefits is creating a welfare state where the IRS can force you to pay taxes for each respective tax year you receive a significant amount of unemployment benefits. Now, if you think you are not required to file taxes on unemployment benefits, you are vastly mistaken. Also, if you do not file and pay your taxes to the IRS in a timely fashion, the IRS can create a lien and levy taxes from you on any of your personal assets.

So, if you are receiving unemployment benefits, get ready to pay the IRS for the 2010 tax year.

Source: CNNMoney.com: Jobless benefits cost so far: $319 billion

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