Monday, February 8, 2010

UNEMPLOYMENT INSURANCE - TAXES

A common question: do I report it? A common answer: yes and file. Here is some information the the Department of Labor website:

"Q: Is there tax relief available for UI claimants?

A:  Yes. Under current legislation, the first $2400 of UI benefits paid in the year 2009 will be exempt from federal and state taxes.

Q: Will any benefits be withheld for taxes?

A:  The withholding of benefits for Federal income tax or State income tax is voluntary. If you elect to have Federal tax withheld, an amount equal to 10% of your gross benefit payment will be withheld after mandatory deductions, such as child support payments, are made. If you elect to have State tax withheld, an amount equal to 2.5% of your gross benefit payment will be withheld. You can change this option any time by calling the Telephone Claims Center toll-free number, selecting the option to ask a question about a claim you already filed, entering your SSN and PIN, and then selecting the option to begin or cancel the withholding of federal or state income tax.

Q: Can I change my tax withholding option?

A:  You may start or stop the federal or state tax withholding at any time by contacting the Telephone Claims Center and:
• Selecting option to "Ask a question about a claim you already filed," and
• Entering your Social Security number and PIN, and
• Selecting the option to begin or cancel the withholding of federal or state income tax.

If you elect the tax withholding option, you must have 10% withheld; you cannot have any less or any more than 10% withheld. If you elect the state tax withholding option, you must have 2.5% withheld; you cannot have any less or any more than 2.5% withheld.

Q: Can I have my tax withholding returned to me?

A:   Any benefits withheld cannot be returned to you by the Department of Labor; benefits withheld can only be returned to you by the Federal or State government as part of your income tax refund.

Q: Will I receive a year-end statement?

A:   Yes. During January, the Department of Labor sends out a Form 1099-G (Statement for Recipients of Certain Government Payments) to claimants who received unemployment insurance benefits during the previous calendar year. Because of this, it is important that you notify the Telephone Claims Center of your current address.

Please keep the Form 1099-G for your records. The information on your benefit statement is also sent to the Internal Revenue Service and the New York State Department of Taxation and Finance. Unemployment compensation includes: unemployment insurance payments; extended benefits and Federal Supplemental Compensation payments; Trade Adjustment Act (TAA) basic, retroactive, and additional for training payments; and Disaster Unemployment Assistance (DUA) payments. If you did not receive any unemployment compensation during the previous calendar year, but repaid an overpayment of benefits, the Form 1099-G is sent to you as the information may be helpful to you in filing your return.

If you received unemployment insurance benefits during the prior calendar year, and do not receive your Form 1099-G by February of this year, please contact the Department of Labor – Payment Unit at 518-485-7071, or you can request the 1099-G by mail. For a complete record of your UI payments, login on the Benefits Online Page and click on 'View Payment History'.

In addition to federal and state income tax, you are also responsible for New York City and Yonkers City income tax, if you are subject to them.

It may be necessary for you to make estimated tax payments to avoid a penalty for underpayment when you file your return next year. For more information on when you should make estimated federal tax payments, see IRS Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES. For estimated state tax, use Form IT - 2105, Estimated Tax Payment Voucher. If you have any questions about estimated state tax payments, contact the NYS Department of Taxation and Finance at 1-800-225-5829. The withholding of 2.5% of your benefit amount for State income tax is voluntary.

The Internal Revenue Service is responsible for interpreting and applying the provisions of income tax laws. Any questions on federal taxes should be directed to the nearest Internal Revenue Service office. The New York State Department of Tax and Finance is responsible for interpreting and applying the provision of state income tax laws. Questions on state taxes should be referred to the NYS Department of Taxation and Finance.

Q: If I repaid an overpayment will it appear on my form 1099-G?

A: Yes, provided the repayment was received by the Department of Labor during that tax year. If you did not receive any unemployment compensation during the previous calendar year, but repaid an overpayment of benefits, the Form 1099-G is sent to you as the information may be helpful to you in filing your return. Please note that only cash repayments are reported on Form 1099-G. Benefits taken from your claim to repay an overpayment are not cash repayments and are not included in the form. "

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