How is that screwed up? Unemployment income is still income. It works the same way in canada as well[1]. I get why it sounds stupid on the surface (ie. why is the government giving you money, then asking to give a portion back?), but it makes sense if you think about it. Otherwise unemployment disproportionately benefits high income earners because it's tax-free.
We should not expect people to devote lots of energy towards frivolous bureaucratic errands. If everyone who collected unemployment correctly identified the tax implications and budgeted appropriately then we would have a very screwed up problem on our hands: a drone-like population of box-checkers who shockingly ignore more important aspects of life.
>If everyone who collected unemployment correctly identified the tax implications and budgeted appropriately then we would have a very screwed up problem on our hands: a drone-like population of box-checkers who shockingly ignore more important aspects of life.
I think you're being hyperbolic here. If you knew about this it takes less than 5 minutes for you to get out a calculator and figure out how much you need to have on reserve. If you didn't know about this add in 10-15 minutes to research it. That doesn't seem like very onerous to me. Some sibling commenters also mentioned that some state's unemployment application contain a checkbox asking whether they want their income tax to be withheld for them, which reduces the time spent to 5 seconds.
Yup, I intentionally made my comment a little hyperbolic, but I really want to drive attention to the "everyone" portion of my comment. The errand everyone must correctly perform punishes the most at-risk for failure. If everyone complied perfectly, then the IRS would not ding anyone, but also the population would likely resemble a sad army of soulless drones.
Instead thousands upon thousands of bureaucratic errands end up stacked on sticky kitchen tables next to crying children and loud-talking relatives. Life has way more to offer than pithy remarks from suits about box checking especially when the penalties the suits hand out deal such crushing blows to the people at the kitchen table.
I think people think its messed up because most people are using the very little money they are given just to not be evicted or buy food. No one is saving it. So the idea that people will be able to cover it in taxes is... well honestly laughable.
Well I guess the alternative would be to withhold part of the stimulus/unemployment checks. That would result in less surprises come tax time, but it also means less money paid out (the amount withheld is basically a interest-free loan from the government).
It's screwed up because we give people a very small amount of income to help them while they are seeking another job and then tax them on that small income. Why does it need to be taxed?
The max unemployment given per month does not cover rent for most people in a mid to high cost of living area. It just seems insane to decide that that income should be taxed as well.
That money comes from tax revenue. You already paid taxes on your income once. Now you are getting taxed on it again when it recycles back to you. You will also get taxed on it again when you spend it. There is a flow chart somewhere that shows the myriad of ways the same money is repeatedly taxed.
Technically it comes from unemployment insurance premiums. Wikipedia says: In the United States, benefits are funded by a compulsory governmental insurance system, not taxes on individual citizens.
It's easy to imagine some sort of alternate reality where the unemployment insurance system is handled by a private company, for instance.
Moreover, calling it double-tax doesn't really make any sense because the tax is on the income, not the dollar itself. Public sector employees aren't getting double-taxed because part of their salary goes to the government, which pays for their paycheck. You're also not taxed infinity-taxed because your paycheck comes from a business which is taxed, which gets its revenue from a consumer which is taxed, which gets their paycheck from a business which is taxed...
If it isn't a tax, then may I opt out of it and/or get all the money back I put into it? My current strategy is government grants to fund project I want to do regardless, but I don't think that will ever really break even.
[1] https://www.canada.ca/en/revenue-agency/news/2021/02/governm...