DRS: Unemployment Compensation

 
Unemployment Compensation

Unemployment compensation is subject to state and federal income tax.  Any unemployment compensation that you received during the taxable year will be be included in your federal and your Connecticut adjusted gross income. 
 
Federal Income Tax:  For further information on the taxability for federal income tax purposes of unemployment compensation, visit the Internal Revenue Service (IRS) - Unemployment Compensation webpage.
 
NEW: Under Section 1007 of the American Recovery and Reinvestment Act of 2009, for the taxable year beginning in 2009, gross income, for federal income tax purposes, does not include so much of the unemployment compensation received by an individual as does not exceed $2,400. Any amount not includible in an individual's federal gross income would not be includible in his or her federal adjusted gross income, or, in the absence of any modification expressly made by Conn. Gen. Stat. 12-701(a)(20), his or her Connecticut adjusted gross income.  Therefore, to the extent that up to $2,400 of unemployment compensation received in 2009 in not subject to federal income tax, it will not be subject to Connecticut income tax.
 
Connecticut income Tax:
Connecticut Residents:  In general, unemployment compensation income, whether received from the Connecticut Department of Labor or from an equivalent agency in another state, is subject to both federal and Connecticut income taxes.  As a resident, you will be subject to Connecticut income tax on the benefits.
If the unemployment compensation was paid to you by the Connecticut Department of Labor, you have the option of having Federal and Connecticut income taxes withheld from each payment.  If you do not have taxes withheld, you may have to make estimated income tax payments to the IRS and to the Connecticut Department of Revenue Services (DRS).  Failure to have tax withheld or to make timely estimated payments can result in underpayment penalties. 
Filing your Federal and Connecticut Income Tax Return:  In general, unemployment compensation paid to you in the prior calendar year is reported to you by the Connecticut Department of Labor (or equivalent agency in another state) on Form UC-1099-G in late January.  The form will also report the amount of federal and state taxes that were withheld from your benefits.  Use this information to complete your federal and Connecticut income tax return.  The unemployment compensation will be included in your federal adjusted gross income which is then brought over to Line 1 of the Connecticut income tax return. If you had any tax withheld by the Connecticut Department of Labor, it will be reported to you as state tax withheld on Form UC-1099-G.  Be sure to report the withholding on the withholding schedule on the Connecticut income tax return.
 
If you received unemployment compensation from another state, you may also be subject to income tax in that state and you should contact the tax department in that state for information.  If you are subject to tax in that state, you will file a nonresident return with that state and you will be able to claim credit on your Connecticut resident return for that tax paid to that state by completing Schedule 2, Credit for Tax Paid to Another Jurisdiction.  You can claim credit for tax paid to another jurisdiction by filing Form CT-1040 using the TSC or electronically using commercially available software or through a tax preparer.  Do not Telefile or use the paper CT-1040EZ if you paid tax to another jurisdiction and want to claim credit on your Connecticut return.
Nonresidents of Connecticut:  In general, unemployment compensation income, whether received from the Connecticut Department of Labor or from an equivalent agency in another state, is subject to both federal and Connecticut income taxes.  As a resident, you will claim Connecticut income tax on the benefits.  If you are a nonresident, the unemployment compensation paid to you in connection with former employment in Connecticut will be Connecticut source income and subject to Connecticut income tax.
 
If the unemployment compensation was paid to you by the Connecticut Department of Labor, you have the option of having Federal and Connecticut income taxes withheld from each payment.  If you do not have taxes withheld, you may have to make estimated income tax payments to the IRS and to the Connecticut Department of Revenue Services (DRS).  Failure to have tax withheld or to make timely estimated payments can result in underpayment penalties.
 
Filing your Federal and Connecticut Income Tax Return:  In general, unemployment compensation paid to you in the prior calendar year is reported to you by the Connecticut Department of Labor (or equivalent agency in another state) on Form UC-1099-G in late January.  The form will also report the amount of federal and state taxes that were withheld from your payments.  Use this information to complete your federal and Connecticut income tax return.  The unemployment compensation will be included in your federal adjusted gross income which is then brought over to Line 1 of the Connecticut income tax return. Nonresidents must file Form CT-1040NR/PY and report the unemployment compensation, along with any other Connecticut source income, on Schedule CT-SI of that form.  If you had any tax withheld by the Connecticut Department of Labor, it will be reported to you as state tax withheld on Form UC-1099-G.  Be sure to report the withholding on the withholding schedule on the Connecticut income tax return.
 
Check with that tax department in your state of residence to see if you can claim credit for tax paid to Connecticut on the unemployment compensation.
The Department of Labor's brochure, A Guide to Your Rights and Responsibilities When Claiming Benefits in Connecticut, is helpful in explaining how to request withholding.