Archive for Unemployment
Unemployment compensation generally includes, among other forms, state unemployment compensation benefits, but the tax implications depend on the type of program paying the benefits. You must report unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ as represented by any IRS Form 1099-G‘s that you receive, with the total unemployment compensation paid to you shown in box 1.
For complete information on each of the benefits listed, see chapter 12 in IRS Publication 17, Your Federal Income Tax, or Publication 525, Taxable and Nontaxable Income. Some other types of unemployment benefits include:
Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
Railroad unemployment compensation benefits
Disability payments from a government program paid as a substitute for unemployment compensation
Trade readjustment allowances under the Trade Act of 1974
Unemployment assistance under the Disaster Relief and Emergency Assistance Act
You also must report benefits paid to you as an unemployed member of a union from regular union dues. However, if you contribute to a special union fund and your payments to the fund are not deductible, you only need to include in your income the unemployment benefits that exceed the amount of your contributions.
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 percent of your payment. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.
I received an interesting call today from a small business employer who was reported to the IRS by a disgruntled past worker who claimed that he was paid as an independent contractor (and received IRS Form 1099) when in actuality he believed himself to be an employee (that should have received IRS Form W-2) for tax reporting purposes.
This prompted me to post about the new Voluntary Worker Classification Settlement Program. Having created well over 300 living wage jobs with benefits for people over the years I’ve grown to believe that most people roaming the planet today have no idea about the risks associated with that effort. The biggest risk in my opinion is associated with properly classifying workers as either employees subject to employment tax obligations or independent contractors whereby the worker is responsible for paying their own self employment tax. In the past the IRS has closed down the most well meaning business operations because improper worker classification created very large employment tax liabilities and heavily burdensome Trust Fund Recovery Penalties. The biggest risk I think is when a worker classified as an independent contractor gets injured on the job and doesn’t have his/her own insurance coverage or when a worker classified as an independent contractor becomes disgruntled and decides as a parting blow to report his/her ‘boss’ to the IRS or the US Treasury.
To alleviate that pain and mitigate some risk associated with one of thousands of decisions that job creators routinely make IRS Announcement 2011-64 gives businesses an opportunity to reclassify independent contractors as employees going forward.
IRS Form 8952 is used by businesses to apply for this reclassification opportunity. A business that applies for and is accepted into this program:
1) Receives audit protection backwards in connection with these reclassified workers,
2) Pays only 10% of the normal employer tax liability that may be due for the most recent tax year, and
3) Is not liable for interest and penalties on the amount.
In exchange the business gives IRS a six-year statute of limitation on the following three years’ employment taxes.
To be eligible:
1) The business cannot currently be under audit by IRS, the Department of Labor, or a state or local agency. If the business has previously been audited, the business has to be currently complying with the directions of that audit.
2) The business must have consistently treated the workers as independent contractors.
3) The business must have filed all Forms 1099 for the prior years.
Its a rare occasion that I pontificate in my tax blog but this just took me over the top this morning……. Recently released IRS data indicates that 2,840 households making at least $1 million collected $18.6 million in unemployment insurance in 2008. Of those, 806 had incomes of more than $2 million, and 17 had incomes over $10 million, according to Bloomberg.com. If you are one of these scum bags that felt compelled to collect unemployment even though you made over $1,000,000.00, may the Good Lord have mercy on your soul for you are in route to rot in hell for all of eternity. On the bright side its never too late to change.
Taxpayers who received unemployment benefits in 2009 are entitled to a special tax break when they file their 2009 federal tax returns. This tax break is part of the American Recovery and Reinvestment Act of 2009. Here are five important facts the Internal Revenue Service wants you to know about your unemployment benefits.
Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a specific state. It includes state unemployment insurance benefits, railroad unemployment compensation benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It does not include worker’s compensation.
Normally, unemployment benefits are taxable; however, under the Recovery Act, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their federal tax return.
For a married couple, if each spouse received unemployment compensation then each is eligible to exclude the first $2,400 of benefits.
You should receive a Form 1099-G, Certain Government Payments, which shows the total unemployment compensation paid to you in 2009 in box 1.
You must subtract $2,400 from the amount in box 1 of Form 1099-G to figure how much of your unemployment compensation is taxable and must be reported on your federal tax return. Do not enter less than zero.
IRS Publication 4128 Tax Impact of Job Loss was released in August of 2009.
The publication explains the job loss tax issues connected to severance pay, unemployment compensation, pension plans, IRAs, expenses for a job search, and possible moving costs. It also discusses self-employment issues for the newly unemployed. The IRS provides the following information to assist those newly unemployed:
Severance pay and unemployment compensation are taxable. Payment for any accumulated vacation or sick time is also taxable.
Generally, withdrawals from a pension plan are taxable unless they are transferred to a qualified plan (such as an IRA).
Certain expenses incurred while looking for a new job may be deductible. Examples of deductible expenses include employment and outplacement agency fees, resume preparation, and travel expenses for job search and interviews.
Moving costs you incur because of a change in your job location may be deductible. You must meet certain criteria relating to distance moved and timing of the move.