If you lose your job, you may qualify for unemployment benefits. While
these payments may come as a relief, it’s important to remember that they may
be taxable. Here are five key facts about unemployment compensation:
1. Unemployment is Taxable. You must include all unemployment
compensation as income for the year.
You should receive a Form
1099-G, Certain Government Payments
by Jan. 31 of the following year. This form will show the amount paid to you
and the amount of any federal income tax withheld.
2. Paid Under U.S. or State Law. There are various types
of unemployment compensation. Unemployment includes amounts paid under U.S. or
state unemployment compensation laws. For more information, see Publication
525, Taxable and Nontaxable
Income.
3. Union Benefits May be Taxable. You must include
benefits paid to you from regular union dues in your income. Other rules may
apply if you contributed to a special union fund and your contributions to the
fund are not deductible. In that case, you only include as income any amount
that you got that was more than the contributions you made.
4. You May have Tax Withheld. You can choose to have federal
income tax withheld from your unemployment.
You can have this done using Form
W-4V, Voluntary Withholding
Request. If you choose not to have tax withheld, you may need to make estimated
tax payments during the year.
5. Visit IRS.gov for Help. If you’re facing financial
difficulties, you should visit the IRS.gov page: “What
Ifs” for Struggling Taxpayers. This page explains the tax effect of events such as job loss. For
example, if your income decreased, you may be eligible for certain tax credits,
like the Earned Income Tax Credit. If you owe federal taxes and can’t pay your
bill check the Payments tab on IRS.gov to review your options. In many cases,
the IRS can take steps to help ease your financial burden.
For more details visit IRS.gov and check Publication
525. You can view, download and
print Form W-4V at IRS.gov/forms anytime.
Each and every taxpayer has a set of fundamental rights they should be
aware of when dealing with the IRS. These are your Taxpayer
Bill of Rights. Explore your rights and our
obligations to protect them on IRS.gov.
Additional IRS References:
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