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Old 02-15-2009, 02:42 PM
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Unemployment Compensation

I am doing taxes online and it shows the amount of refund in corner, when I add unemployment compensation that my husband received it lowers our refund by $2000. We paid taxes on weekly checks (10%). Is this correct or am I doing something wrong?



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Old 02-15-2009, 03:46 PM
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You have not done anything wrong. This is because Unemployment income is taxable at your ordinary income tax rate on the Federal income Tax return.

Your effective tax rate may have been higher than 10%, the amount that you had your husband withheld his unemployment income received. When the unemployment income is added into your taxable income, the impact is to essentially increase your taxable income and to perhaps push your tax rate higher.

Thus, it is possible that either the unemployment income increased your taxable income and the tax liability was increased to the extent of your tax rate which was higher than the 10% tax rate used to withhold the federal income taxes.

Unfortunately, a 10% withholding rate for your Federal income taxes may have been insufficient to account for the potential tax liability on your Federal Form 1040.

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