While a lot of people know about the resources out there for you when you lose your job, many people don’t know that unemployment compensation can cause a tax problem. The IRS views unemployment compensation as taxable income, meaning you must put that compensation as income on your federal tax return. If you receive unemployment benefits this year, you will receive a Form 10-99-G “Certain Government Payments”. This form will list the total amount of compensation you have received for the year. Beware, some states do count unemployment benefits as taxable income as well.
Unemployment compensation is a form of monetary assistance provided by the federal and state governments to assist people who are out of work. These benefits are funded by taxes paid by other employers. You can usually qualify for unemployment benefits if you are laid off or lose your job through no fault of your own. Your compensation amount will depend on how much your worked, what your income was and what is the maximum benefit your state allows. You can receive these benefits by applying through your states unemployment program. Your unemployment benefits will be included along with any other income you have such as wages, salaries, and bank interest. How much income you receive along with your current filing status will determine if you need to file a federal income tax return. If you are worried about owing taxes, you can choose to have income taxes withheld from your compensation to avoid owing a large amount of taxes when you file your federal return. You report your unemployment compensation on your federal tax return in the income section.
If you need help filing your federal tax return or aren’t sure if you’re supposed to be filing your federal tax return, Polston Tax can help! Call us today at 844-841-9857 or click below to schedule your free consultation!