Important Tax Advice on Unemployment Income

If you were unemployed in 2011, worrying about taxes was probably the last thing on your mind. However, those unemployment benefits you received do have some tax implications and you need to know how to report your unemployment income to the IRS.

In most cases, unemployment compensation consists of state unemployment compensation benefits; still, tax implications are dependent on the type of program that is paying out those benefits.

Here are some important things you should know about reporting unemployment income according to IRS guidelines:

Reporting Unemployment Income 

The IRS requires you to report all unemployment income received on Line 19 of Form 1040, Line 13 of Form 1040A, or Line 3 on Form 1040EZ. 

Form 1099-G 

You should receive Form 1099-G that sums up all of the unemployment compensation you received for the year. The total amount you received will show up in Box 1. Check this figure against your own income records to make sure everything is accurate.

Reporting All Types of Unemployment Benefits 

There are several other types of unemployment benefits that need to be accounted for on your tax return. If you received any of the following, make sure you are reporting them to the IRS:

  • Benefits paid by a state from the Federal Unemployment Trust Fund
  • Benefits paid by 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

Handling Benefits Received from Union Dues 

If you received benefits as an unemployed member of a union from your regular union dues, you have to report them to the IRS.

If you have been contributing money to a special union fund and your payments to that fund are not deductible, the IRS only requires you to include any amount in excess of your contributions as unemployment income.

Having Federal Taxes Withheld 

You do have the option to have federal taxes withheld from your unemployment checks so you don’t have to worry about making a tax payment come tax time.

To authorize this, you will need to complete Form W-4V, Voluntary Withholding Request, and send that over to the office that issues your unemployment checks. The withholding is usually 10 percent of your payment.

Keep in mind that if you decide not to have your tax withheld, you will be responsible for making estimated tax payments throughout the year.

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