Why pay tax on unemployment insurance payments to a line of credit since I pay for th

[ned4spd8874]

What is the name of your state (only U.S. law)? MI

I was out of work for about 6 months last year and took advantage of the unemployment insurance that one of my lines of credit offers, and that I pay for on a monthly basis. So today, I got an income statement from them for the amount that they paid towards my bill while I was out of work. How is this right? I pay them monthly to have that insurance.

So if it's considered an income when they pay out, then what I pay to them on a month to month basis should be considered an expenditure, right? So can I deduct a portion of what I've paid them then? It wouldn't be fair to pay taxes on what they've given to my line of credit company, but I can't do anything about the money that I've given to them throughout these years.

 

[davew128]

I'd consider the current year fees a miscellaneous itemized expense subject to 2% of AGI.

 

[ned4spd8874]

I'd consider the current year fees a miscellaneous itemized expense subject to 2% of AGI.

Thanks, I was able to find a blurb online saying that the reason I would pay taxes on it is because they paid more to the credit company than I paid them for the year. But I can't find any clarification on the IRS web site so I can look at the actual code or law or whatever.

 

[OHRoadwarrior]

I have not experienced this before. My analysis would be two fold. First if you received a 1099-C it is taxable. Second, if the insurance was a loan add-on, instead of a policy purchased exclusive of the loan, forgiven amount is taxable.



Canceled Debts

Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold.

Form 1099-C. If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. The amount of the canceled debt is shown in box 2.

Publication 525 (2010), Taxable and Nontaxable Income

 

[ned4spd8874]

I have not experienced this before. My analysis would be two fold. First if you received a 1099-C it is taxable. Second, if the insurance was a loan add-on, instead of a policy purchased exclusive of the loan, forgiven amount is taxable.



Canceled Debts

Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold.

Form 1099-C. If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. The amount of the canceled debt is shown in box 2.

Publication 525 (2010), Taxable and Nontaxable Income

But it's not technically "forgiven". I paid a third party a monthly fee and in turn, when I lost my job, they paid my monthly minimum payment. The loan in question for for HSBC, but it was some other company that was making the payments. Granted, the monthly fee I paid was too HSBC, but the actual insurance was provided by a third party, not HSBC.

I'll have to look when I get home and see if it's a 1099-C form.

 

[LdiJ]

I have not experienced this before. My analysis would be two fold. First if you received a 1099-C it is taxable. Second, if the insurance was a loan add-on, instead of a policy purchased exclusive of the loan, forgiven amount is taxable.



Canceled Debts

Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold.

Form 1099-C. If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. The amount of the canceled debt is shown in box 2.

Publication 525 (2010), Taxable and Nontaxable Income

This is not remoted a cancellation of debt situation. Nor did the OP receive a 1099-C.

This is third party insurance that provided extra income during a specific period of need as defined by the policy.

I agree that its income, and I agree with Dave that this year's costs of the insurance should be claimed on Schedule A as a miscellaneous deduction subject to 2% of AGI.

I agree because this is not the type of insurance designed to "make you whole". Its the kind of insurance that replaces income on a temporary basis. Its similar to unemployment insurance or third party sick pay.

 

[ned4spd8874]

This is not remoted a cancellation of debt situation. Nor did the OP receive a 1099-C.

This is third party insurance that provided extra income during a specific period of need as defined by the policy.

I agree that its income, and I agree with Dave that this year's costs of the insurance should be claimed on Schedule A as a miscellaneous deduction subject to 2% of AGI.

I agree because this is not the type of insurance designed to "make you whole". Its the kind of insurance that replaces income on a temporary basis. Its similar to unemployment insurance or third party sick pay.

I'm home now. The company is Wesco and the form they sent is a 1099-misc. Does that help?

Oh, and I still don't understand how this is considered income still? If I make a claim on my auto or homeowners, I don't have to report that as income. Sorry, I'm not trying to give you guys a hard time or question your knowledge, I just don't get how this is different. It's all insurance. Something that I pay on a regular basis to cover any expenses or losses in a time of need.

 

[davew128]

I'm home now. The company is Wesco and the form they sent is a 1099-misc. Does that help?

Wholly irrelevant.

Oh, and I still don't understand how this is considered income still? If I make a claim on my auto or homeowners, I don't have to report that as income.

Then clearly you don't understand what they are.

 

[LdiJ]

I'm home now. The company is Wesco and the form they sent is a 1099-misc. Does that help?

Oh, and I still don't understand how this is considered income still? If I make a claim on my auto or homeowners, I don't have to report that as income. Sorry, I'm not trying to give you guys a hard time or question your knowledge, I just don't get how this is different. It's all insurance. Something that I pay on a regular basis to cover any expenses or losses in a time of need.

Homeowners and auto insurance covers an asset that you have already purchased with taxable income. Its designed to "make you whole" should that asset be damaged.

The insurance we are talking about here replaced taxable income, therefore its also taxable. That is as simplistic as I can make it.

 

[ned4spd8874]

Homeowners and auto insurance covers an asset that you have already purchased with taxable income. Its designed to "make you whole" should that asset be damaged.

The insurance we are talking about here replaced taxable income, therefore its also taxable. That is as simplistic as I can make it.

Okay that makes more sense. It still seems a little weird and off and I use my income, that is already taxed, to purchase this protection and then get taxed when I have to use it.

Your explanation helps, but it still kinda feels like a double tax to me. Much the same as paying taxes on my state or city tax return from last year. The government seems to love taxing us more than once.