Is Unemployment Taxable? Do taxes have to be paid on Unemployment Benefits?
If you received unemployment benefits this year, you must report the payments on your federal income tax return.
Here are four things you should know about unemployment benefits:
1. Unemployment is taxable. You must include all unemployment compensation you received in your total income for the year. You should receive a Form 1099-G, Certain Government Payments. It will show the amount you were paid and the amount of any federal income taxes withheld from your payments.
2. Paid under U.S. or state law. Types of unemployment benefits include:
- Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
- Railroad unemployment compensation benefits
- Disability payments from a government program paid as a substitute for unemployment compensation
- Trade readjustment allowances under the Trade Act of 1974
- Unemployment assistance under the Disaster Relief and Emergency Assistance Act
3. Union benefits may be taxable. You must include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.
4. You may have tax withheld. You can choose to have federal income tax withheld from your unemployment benefits. You make this choice using Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.
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For immediate assistance with unemployment benefits, or another tax matter, contact us today at 1-714-382-6780 for a FREE and CONFIDENTIAL consultation with our CPAs and former IRS Agents.
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