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_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

Taxation of Unemployment Benefits

Julie M. Whittaker, Specialist in Income Security

February 7, 2013

http://www.fas.org/sgp/crs/misc/RS21356.pdf

[full-text, 8 pages]

Summary

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). Under tax law, unemployment

compensation is a broad category that includes regular state UC benefits, extended benefits (EB),

trade adjustment assistance benefits, disaster unemployment assistance, and railroad

unemployment benefits. The temporary Emergency Unemployment Compensation (EUC08)

benefit is also included within this category.

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 current exclusion on UC benefits for the purposes of federal income tax.

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.

Contents

Overview.......................................................................................................................................... 1

Impact of Taxing Unemployment Benefits ...................................................................................... 1

Legislative History ........................................................................................................................... 3

Recent Legislation ........................................................................................................................... 4

Tables

Table 1. Number of Federal Tax Returns With Reported Unemployment Compensation (UC) and Amount of Benefits, Tax Years 1998-2010 .................... 2

Table 2. Estimated Effect of Taxing Unemployment Compensation, by Income Class, 2005 .............................................................................................. 3

Contacts

Author Contact Information............................................................................................................. 5

Acknowledgments ........................................................................................................................... 5

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