Taxation of Unemployment Benefits

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 (TAA) benefits, Disaster Unemployment Assistance (DUA), and railroad unemployment benefits, as well as the now expired Emergency Unemployment Compensation (EUC08) benefits. 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. UC benefits are considered income and may be subject to federal income tax. This report provides an overview of the taxation of UC benefits and legislation related to taxing UC benefits