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Unemployment Compensation Benefits

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Unemployment compensation benefits are taxable income for federal income taxes, although states usually exempt unemployment benefits from state income taxes.

Reporting Unemployment Benefits

The state agency paying the unemployment compensation benefits reports your total benefits for the year using Form 1099-G. You then report your benefits on your tax return using Form 1040EZ, 1040A, or 1040.

What the IRS has to say about Unemployment Compensation

"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 and disability benefits paid as a substitute for unemployment compensation, but not worker's compensation." (from IRS Tax Topic 418)

Withholding on Unemployment Compensation

Taxpayers may choose to have federal income tax withheld from unemployment compensation benefits. Federal income tax can be withheld at a flat rate of 10%. Use Form W-4V (or an alternate form provided by the agency) to make your withholding choice.

Special Rule for Year 2009

For 2009 only, the first $2,400 in unemployment benefits will be exempt from federal income taxes, due to a provision in the American Recovery and Reinvestment Act. Benefits in excess of this amount are still subject to federal income taxes.
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  5. 1040
  6. Unemployment Compensation Benefits: Tax Treatment and Withholding

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