Reporting Unemployment Payments

• If gross income exceeds the annual limits, regardless of the source of income, U.S. residents must file federal income taxes. According to IRS regulations, all unemployment compensation is considered taxable unearned income. Filers who report unemployment compensation on federal tax returns for the first time should be aware that there is a separate line on federal forms specifically for the amount, in other words, distinct from wages and salaries. For married taxpayers who file a joint federal return, if both received unemployment compensation during the same tax year, each must list the compensation separately.
  
  

Form 1099-G Certain Government Payments

• The total amount of unemployment compensation a taxpayer receives is shown on Form 1099-G, "Certain Government Payments." The taxpayer should receive a copy of this information form from the appropriate government agency following the end of the tax year. The IRS instructs payers to provide a copy of the form to the taxpayer by January 31. However, should the taxpayer not receive the 1099-G form by the proposed due date, it is imperative to wait until the information on the form can be reported on the taxpayer's federal return.
  
  

Withholding Federal Taxes

• Box 4 of Form 1099-G should include any federal income tax withheld from the unemployment compensation payments. If the taxpayer filled out Form W-4V "Voluntary Withholding Request" when applying for unemployment and federal taxes were withheld, additional payments of year-end taxes may not be required. Furthermore, depending on the individual's specific tax situation, a refund of a portion of taxes withheld may be forthcoming.
  
  

Expired 2009 Exclusion

• For taxpayers who may have received unemployment compensation in 2009 and 2010, a change in regulations between the two tax years should be noted. The first $2,400 of unemployment compensation received during the 2009 tax year was nontaxable income as part of the American Recovery and Reinvestment Act of 2009. All amounts over the $2,400 limit were then considered taxable unearned income under U.S. tax code. However, that provision expired, and for tax year 2010, no exclusion was given. Therefore, all unemployment compensation received in 2010 was taxable.