Unemployment Benefits and Taxes

As practitioners assist clients in navigating these challenging times, they should consider warning clients about the income tax effects of unemployment benefits. 

While unemployment benefits are included in gross income, many recipients do not have income taxes withheld from the benefits.  For those who elect to have withholding, the amount of withholding is often below the amount of the tax liability actually owed on the benefits.  As a result, recipients may owe a balance of tax next April and should be warned about this possibility.