What does tax withheld mean on unemployment

Taxes on Unemployment Benefits

All benefits are considered gross income for federal income tax purposes. This includes benefits paid under the federal CARES Act, Federal Pandemic Unemployment Compensation (FPUC), state Extended Benefits (EB), Trade Adjustment Assistance (TAA), Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and Lost Wages Assistance (LWA). DES reports these benefits to the Internal Revenue Service (IRS) for the calendar year in which the benefits were paid.

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Taxes on Unemployment Benefits
Unemployment Insurance Benefits Tax Form 1099-G
What is the meaning of tax withheld?
Should I have tax withheld?

You may choose to have federal income tax withheld from your unemployment benefit payments at the rate of 10% of your gross weekly benefit rate (before deductions for earnings, benefit reduction, child support, etc.), plus the allowance for dependents (if any).

The amount deducted for state income tax will be 10% of the amount deducted for federal taxes, which is currently calculated as 1% of the gross weekly benefit amount. Please Note: State income tax cannot be withheld from the $300 additional weekly benefit in Lost Wages Assistance (LWA) and the $600 additional weekly FPUC benefit for regular UI claims. Claimants who received FPUC and/or LWA in regular UI will be responsible for paying any tax due on those amounts when filing state income taxes for calendar year 2021.

After selecting your tax withholding on the initial Unemployment Insurance (UI) application, you can change your withholding preferences by completing the Voluntary Election for Federal/State Income Tax Withholding form (UB-433). After completing the form, submit it to DES by mail or fax.

To submit by mail: Department of Economic Security, Unemployment Insurance Administration, P. O. Box 29225, Phoenix, Arizona 85038-9225

To submit by fax: Phoenix (602) 612-8705 or (888) 305-1348 or Tucson (520) 770-3357 or (520) 770-3358

If you are receiving Pandemic Unemployment Assistance (PUA), you can view your current withholding selections and change your withholding preferences by logging into the PUA portal and selecting “Federal Tax Deduction” from the “Unemployment Services” section of your dashboard. After making your tax withholding selection, click “save” to have your preference updated. For more information, please refer to the PUA user guide located on the homepage of PUA portal.

Unemployment Insurance Benefits Tax Form 1099-G

DES has mailed 1099-G tax forms to claimants who received unemployment benefits in 2021. The address shown below may be used to request forms for prior tax years. Please be sure to include your Social Security Number and remember to indicate which tax year you need in your request.

Department of Economic Security
Special Programs Unit
P.O. Box 6123 - Mail Drop 589C
Phoenix, Arizona 85005

Note for reference purposes, the State and Federal ID numbers are as follows:

State ID # 07-506284E
Federal ID #86-0369595

Purpose. To advise states of the provisions of Public Law (P.L.) 107-16 relating to the UC program.

References. P.L. 107-16, the Economic Growth and Tax Relief Reconciliation Act of 2001 (115 Stat. 38); the Internal Revenue Code of 1986 (IRC), as amended, including the Federal Unemployment Tax Act (FUTA); and Unemployment Insurance Program Letters (UIPL) 17-95 (60 Fed. Reg. 15794, March 27, 1995) and 25-00 (65 Fed. Reg. 41729, July 6, 2000).

Background. On June 7, 2001, the President signed into law P.L. 107-16, the Economic Growth and Tax Relief Reconciliation Act of 2001. This enactment affects the UC program in two ways-

The voluntary withholding rate on UC benefits has been reduced from 15 percent to 10 percent.
The exclusion of employer-provided educational assistance from the FUTA definition of wages has been extended to graduate education and has been made permanent.

Voluntary Withholding Rate. Since January 1, 1997, states have been required to withhold federal income tax from payments of UC when the individual so elects. (See UIPL 17-95.) At that time, Section 3402(p)(2), IRC, provided that the amount of federal income tax withheld from UC "shall be an amount equal to 15 percent of such payment." The "15 percent" withholding rate was changed to "10 percent" by Section 101(c)(7) of P.L. 107-16. As a result, states are now required to withhold, if the individual so elects, "an amount equal to" 10 percent of the amount of a payment of UC. States may not, with respect to an individual who requests the withholding, withhold an amount greater or less than 10 percent.

Each state will need to determine whether its UC law needs to be amended to change the withholding rate for federal income taxes. If a state must amend its law, the Department recommends that the state use language designed to accommodate any future changes in the withholding rate. The Draft Language previously provided by the Department contained the following language-

The individual may elect to have Federal income tax deducted and withheld from the individual's payment of unemployment compensation at the amount specified in the Federal Internal Revenue Code. [Attachment II to UIPL 17-95.]

The change to a 10 percent withholding rate is effective with respect to payments made after 60 days after the date of enactment of P.L. 107-16. (Section 101(d)(2) of P.L. 107-16.) Since the date of enactment was June 7, 2001, the amendment pertains to payments made on and after August 7, 2001. Therefore, for purposes of conformity and compliance with federal law, the withholding rate for all payments made on and after August 7, 2001, is 10 percent.

Employer Provided Educational Assistance. Section 3306(b)(13), FUTA, excludes from the definition of wages-

any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127 or 129.

Under Section 127, IRC, employer-paid education expenses are excludable from the gross income and wages of an employee if provided under an educational assistance plan. Prior to the amendments made by P.L. 107-16, this exclusion did not apply to-

Graduate courses beginning after June 30, 1996, and
Undergraduate courses beginning after December 31, 2001.

Section 411 of P.L. 107-16 extends the exclusion to graduate courses and makes the exclusion permanent for both undergraduate and graduate courses. The amendment is effective with respect to courses beginning after December 31, 2001. (Section 411(d) of P.L. 107-16.) States are not required to exclude these payments/benefits from their state law definition of wages.

Action Required. State Administrators should provide this information to appropriate staff. All states should immediately take steps to change the voluntary withholding rate.

Inquiries. Questions should be directed to the appropriate Regional Office.

What is the meaning of tax withheld?

The term withholding tax refers to the money that an employer deducts from an employee's gross wages and pays directly to the government. The vast majority of people who are employed in the United States are subject to tax withholding.

Should I have tax withheld?

Most employees are subject to withholding tax. Your employer is the one responsible for sending it to the IRS. In order to be exempt from tax withholding, you must have owed no federal income tax in the prior tax year and you must not expect to owe any federal income tax this tax year.