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Publication 17

Unemployment Benefits(p92)

The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits.

Unemployment compensation.(p92)

You must include in income all unemployment compensation you receive. You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.
Types of unemployment compensation.(p92)
Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. It includes the following benefits.
Governmental program.(p93)
If you contribute to a governmental unemployment compensation program and your contributions aren’t deductible, amounts you receive under the program aren’t included as unemployment compensation until you recover your contributions. If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income.
Repayment of unemployment compensation.(p93)
If you repaid in 2016 unemployment compensation you received in 2016, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. On the dotted line next to your entry, enter "Repaid" and the amount you repaid. If you repaid unemployment compensation in 2016 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. If the amount is more than $3,000, see Repayments, earlier.
Tax withholding.(p93)
You can choose to have federal income tax withheld from your unemployment compensation. To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. Tax will be withheld at 10% of your payment.
If you don’t choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. If you don’t pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. For more information on estimated tax, see chapter 4.

Supplemental unemployment benefits.(p93)

Benefits received from an employer-financed fund (to which the employees didn’t contribute) aren’t unemployment compensation. They are taxable as wages. For more information, see Supplemental Unemployment Benefits in section 5 of Pub. 15-A, Employer's Supplemental Tax Guide. Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ.
Repayment of benefits.(p93)
You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them.
Deduct the repayment in the later year as an adjustment to gross income on Form 1040. (You can’t use Form 1040A or Form 1040EZ.) Include the repayment on Form 1040, line 36, and see the instructions there. If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. For more information on this, see Repayments, earlier.

Private unemployment fund.(p93)

Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. Report the taxable amount on Form 1040, line 21.

Payments by a union.(p93)

Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. However, if you contribute to a special union fund and your payments to the fund aren’t deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they’re more than your contributions.

Guaranteed annual wage.(p93)

Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ.

State employees.(p93)

Payments similar to a state's unemployment compensation may be made by the state to its employees who aren’t covered by the state's unemployment compensation law. Although the payments are fully taxable, don’t report them as unemployment compensation. Report these payments on Form 1040, line 21.