Do you receive unemployment benefits? Depending on which program the benefits are distributed from, you may be responsible for paying taxes on the income. Taxable compensation amounts include money received from any of the following programs:

  • State unemployment insurance
  • Federal Unemployment Trust Fund
  • Railroad unemployment compensation
  • Disability compensation
  • Allowances paid in accordance with the Trade Act of 1974
  • Disaster Relief and Emergency Assistance Act of 1974

If you received benefits from the above programs, you may be required to pay taxes on the income. Some types of income are not considered to be unemployment compensation, such as worker’s compensation payments, or distributions from a private unemployment fund. Private unemployment benefits are taxed as if you received a larger sum than you contributed, and is reported on line 21 on your Form 1040. Supplemental unemployment benefits from a fund that your employer supports are also not considered unemployment compensation, and are subject to income tax, Social Security and Medicare taxes, as per regular income. You will find these amounts reported on your W-2 from your employer.

You should include unemployment compensation amounts in your gross income at tax time. You can either chose to have taxes withheld from your benefits, or you may be required to makes estimated tax payments. If you receive unemployment benefits from the government you should receive a Form 1099-G, Certain Government Payments, which documents the total amount of compensation you received. You should seek advice from a qualified tax assistant in order to correctly report your benefits on your tax form.