Tax Tips: Unemployment Benefits

As the unemployment rate in Los Angeles County continues to hover around 11 percent, many receive state and federal unemployment benefits. Yet even those receiving unemployment compensation must pay taxes on those benefits, according to the Internal Revenue Service.

There are multiple types of unemployment benefits and the tax implications may be different for each type. Unemployment benefits include benefits paid by a state from the Federal Unemployment Trust Fund, disability payments from a government program paid as a substitute for unemployment compensation, trade readjustment allowances under the Trade Act of 1974, and unemployment assistance under the Disaster Relief and Emergency Assistance Act, according to the IRS.

Here are some tips regarding taxes and unemployment benefits from the IRS:

• People who received unemployment compensation in 2011 must include it as part of their income on their taxes. These people should receive a Form 1099-G, which will state the total amount of unemployment compensation paid to an individual over the year.

• Benefits paid to an unemployed union member from regular union dues must be reported. If a person contributed to a special union fund where payments aren't tax-deductible, the person only needs to include the amount of money paid in unemployment benefits that exceed the amount of the contributions.

• Federal income tax can be withheld from unemployment compensation if a recipient completes Form W-4V (Voluntary Withholding Request) and gives it to the paying office. If a person elects to have federal income tax withheld, it will be at a 10 percent rate. Those who choose not to have tax withheld may have to make estimated tax payments throughout the year, according to the IRS.

More information about the different types of unemployment benefits as well as other unemployment-related information can be found in chapter 12 of IRS Publication 17 (Your Federal Income Tax) or Publication 525 (Taxable and Nontaxable Income).

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