Here are some important facts from the IRS about unemployment compensation:
1. You must include all unemployment compensation in your income for the year. You should receive a Form 1099-G, Certain Government Payments. It will show the amount paid to you and the amount of any federal income taxes withheld.
2. There are several types of unemployment compensation. They generally include any amount received under an unemployment compensation law of the U.S. or a state.
3. You must include benefits paid to you from regular union dues in your income. Different rules may apply if you contribute to a special union fund and those contributions are not deductible. In that case, only include as income any amount you get that is more than the contributions you made. Also severance pay is taxed as ordinary income in the year received.
4. You can choose to have federal income tax withheld from your unemployment. You make this choice using Form W-4V, Voluntary Withholding Request. If you do not choose to have tax withheld, you may have to make estimated tax payments during the year.
Call the office if you have further questions on this topic.
Written by: Doug Rodrigues