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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