Taxation of Unemployment Benefits

Julie M. Whittaker
Specialist in Income Security

Unemployment compensation (UC) benefits have been fully subject to the federal income tax since the passage of the Tax Reform Act of 1986 (P.L. 99-514). Individuals who receive UC benefits during a year may elect to have the federal (and in some cases state) income tax withheld from their benefits. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 § 1007) includes a temporary exclusion on the first $2,400 of UC benefits for the purposes of the federal income tax. This exclusion exists only in 2009. The Joint Committee on Taxation estimates this would reduce federal receipts by approximately $4.7 billion. 

There is no exclusion for 2010. Among its many provisions, S. 2831 would suspend the federal taxation of the first $2,400 of unemployment benefits through 2010. 

This report provides an overview of the taxation of UC benefits and legislation related to taxing UC benefits. This report will be updated as legislative activity warrants. .


Date of Report: January 12, 2010
Number of Pages: 7
Order Number: RS21356
Price: $29.95

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