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Five facts about unemployment benefits and taxes

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 the 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 January 31 of the following year. This form will show the amount paid to you and the amount of any federal income tax withheld.

  2. There are different types — 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 — Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. However, if you contribute to a special union fund and your payments to the fund aren’t deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions.

  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. The IRS encourages everyone to use the Withholding Calculator to ensure your withholding is adequate.

  5. Visit IRS.gov for help — If you’re facing financial difficulties, you should visit the IRS.gov page: The “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, check out Paying Your Taxes on IRS.gov to review your options.

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.