Anyone who is between jobs knows that unemployment is the most stressful time of all. Sadly, the stresses may be aggravated if you are unaware of how to treat unemployment income for tax purposes.
Unemployment compensation is received in many forms, one being state compensation benefits. The tax implications are dependent on the type of program paying the benefits. You are required to report any unemployment compensation on line 19 of form 1040, line 13 of form 1040 A, or alternatively in line three of form 1040 EZ.
Below are four helpful tips from the Internal Revenue Service with regard to unemployment benefits;
First of all, include all unemployment compensation received in your total income for the year. You should receive a form 1099-G with the total unemployment compensation paid to you.
Furthermore, note that the following forms of compensation may also be considered to be unemployment benefits:
- Benefits paid by a state or the district of Columbia from the Federal Unemployment Trust Fund
- Railroad unemployment compensation benefits
- Disability payments from a government initiative paid in lieu of unemployment compensation
- Trade readjustment allowances( Trade Act of 1974)
- Unemployment aid under the Disaster Relief and Emergency Assistance Act
To access further information on each of the benefits listed above, have a look at chapter twelve of IRS publication seventeen, Your Federal Income Tax. Alternatively, see IRS publication 525, Taxable and Non-taxable incomes.
Thirdly, you must also report any benefits received to you as an unemployed member of a union from regular union dues. However, if you contribute to a special union fund, and if your payments to said fund are not allowable for deduction, you shall only be required to include in your income the unemployment benefits in excess of the amounts of contributions made.
Finally, you may also decide to have federal income tax withheld from your unemployment compensation. This option may be taken by completing Form W-4V, Voluntary Withholding Request. Ensure it is delivered to the paying office, after which tax shall be withheld at ten percent of benefits due to be received. If you choose to not have tax withheld, you will have to make estimated tax remittances throughout the year.
More information on unemployment compensation is available in IRS publications 17 and 525. In addition, all the necessary tax forms are all downloadable from the IRS website (www.irs.gov). Alternatively, you may order the forms by calling 1-800-829-3676.