Happy Tax Season Series: Don’t Forget to Report Unemployment Compensation

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February 10, 2012 by msquaredlaw

With the current United States unemployment rate, many Americans are collecting unemployment, some for the first time ever.  Now that tax season is here, many people are asking whether unemployment payments are taxable.   The short answer is yes, unemployment compensation is taxable.

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state.  It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund.  It also includes railroad unemployment compensation benefits.  However, it does not include worker’s compensation payments.

If you received unemployment compensation during the year, you should receive Form 1099-G, showing the amount you were paid.  Any unemployment compensation received must be included in your income and is reported on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

If you received unemployment compensation, you may be required to make quarterly estimated tax payments.  However, you can avoid this burden by asking the payor to withhold federal income tax by filing a Form W-4V, Voluntary Withholding Request.  If you have done neither of these things, and had no other income tax withheld previously during the year 2011, you may have difficulty paying the taxes you owe this year.

However, we remind you that you should always timely file your income tax return, regardless of whether you can pay the amount owed or not, in order to avoid unnecessary failure to file penalties.  See our previous blog post here explaining additional reasons why you generally should always file.  There are IRS payment plans and other tax debt relief solutions available to you to pay off this debt.

If you have questions or would like our assistance please contact us

For more information, see Unemployment Benefits in Publication 525.

Muiños & Morales


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