Losing a job can affect your life in numerous ways. Unemployment income can provide temporary relief while trying to get back on your feet. There are important facts to remember for your tax return if you qualify for unemployment compensation.
First, unemployment income is taxable. You must include all compensation received as income for the year. You should receive a Form 1099-G by Jan. 31 that shows the amount paid to you and the amount of any federal income tax withheld. You can choose to have tax withheld using Form W-4V. If you don’t, you may need to make estimated tax payments throughout the year.
Keep in mind, qualifying unemployment income is that amount paid under U.S. or state unemployment compensation laws. Other types of benefits include railroad unemployment compensation benefits, disability payments from a government program paid as a substitute for unemployment compensation and others specified in Publication 525.
Here are a few other things you should know that may apply if you lost a job:
- Public assistance and food stamps are not taxable
- Payment for any accumulated vacation or sick time is taxable
- A reduction in income may qualify you for the Earned Income Tax Credit
- Some costs associated with a job search may be deductible. See Publication 529
- Contact the IRS immediately if you think you may have trouble paying your taxes
- File a tax return even if you are unable to pay to avoid additional penalties
We know life brings many challenges. Remember, “In the middle of a difficulty lies opportunity.” (Albert Einstein)