If you lose your job or your employer lays you off, you may be able to get unemployment benefits. The payments may be a welcomed relief. But you should know that they’re taxable.
Here are five important facts from the IRS about unemployment compensation:
- You must include all unemployment compensation
in your income for the year. You should receive a Form 1099-G, Certain
Government Payments. It will show the amount paid to you and the amount
of any federal income taxes withheld.
- There are several types of unemployment compensation. They generally
include any amount received under an unemployment compensation law of
the U.S. or a state. For more about the various types, see Publication 525, Taxable and Nontaxable Income.
- You must include benefits paid to you from regular union dues in
your income. Different rules may apply if you contribute to a special
union fund and those contributions are not deductible. In that case,
only include as income any amount you get that is more than the
contributions you made.
- You can choose to have federal income tax withheld from your unemployment. You make this choice using Form W-4V,
Voluntary Withholding Request. If you do not choose to have tax
withheld, you may have to make estimated tax payments during the year.
- If you are facing financial difficulties, you should visit IRS.gov. “What Ifs” for Struggling Taxpayers explains the tax effect of events such as the loss of a job. For example, if your income decreased, you may be eligible for some tax credits, such as the Earned Income Tax Credit. If you owe federal taxes and can’t pay your bill, contact the IRS as soon as possible. In many cases, the IRS can take steps to help ease your financial burden.
Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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