15.2 Unemployment Compensation

Unemployment compensation is subject to income tax, but not to FICA or self-employment tax.1  If there is no withholding on unemployment compensation, taxpayers may face underpayments and penalties when they file their next tax return. To avoid these problems, a taxpayer can pay quarterly estimated tax payments or file a Form W-4V to have 10% of their unemployment compensation withheld for taxes.

• 1I.R.C. § 85.