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Wednesday, January 12, 2011

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) included a temporary exclusion on the first $2,400 of UC benefits for the purposes of the federal income tax. This exclusion existed only in 2009. The Joint Committee on Taxation estimated this would reduce federal receipts by approximately $4.7 billion.

There is no federal income tax exclusion for unemployment benefits for tax years 2010 or 2011. Among its many provisions, S. 2831 would suspend the federal taxation of the first $2,400 of unemployment benefits for 2010. H.R. 4718 would suspend the federal taxation of unemployment benefits from 2010 through 2012.

This report provides an overview of the taxation of UC benefits and legislation related to taxing UC benefits.

Date of Report: January 5, 2011
Number of Pages: 8
Order Number: RS21356
Price: $19.95

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