If you receive unemployment compensation, it is treated as taxable income on both your federal and state tax returns at the end of the year. When you file a claim for unemployment, you have the option of electing to have both federal and state taxes withheld and deducted from your benefit payments. You also have the option of electing to forgo withholding income tax from your payments altogether. You are allowed to change your selections at any time during your unemployment claim period.
1. Locate the website or contact information for your state unemployment insurance office. Each state, and the District of Columbia, processes its own unemployment insurance claims.
2. Visit the unemployment insurance website and type "withholding form" in the search field for the site. The form you must fill out to change your withholding status is returned in the search field. If have difficulty finding the form on the website, contact the unemployment office by phone, and request a tax withholding status change form.
3. Complete the form. Indicate your preference to begin or stop income tax withholding from your benefit payments. Return the form to the unemployment insurance office. The address or fax number where to send the form is listed on the document.
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