Do I Have to Pay Income Tax Withholding for Unemployment in the State of Texas?

When you're laid off, you might be eligible to collect unemployment.
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Employees in Texas don't pay into the unemployment compensation fund, but they can receive money from the fund if unemployed through no fault of their own. Just as Social Security or other government benefits are taxable income to a recipient, so is unemployment. To help ensure that you don't wind up owing the government money at the end of the year, you can voluntarily have 10 percent of your Texas unemployment withheld to pay toward your federal income tax.

Federal Unemployment Tax Act

The Federal Unemployment Tax Act established a combined federal/state unemployment compensation fund. Each state administers its own program in accordance with federal guidelines. The program is funded through taxes that employers pay to the federal and state governments. There are no payroll deductions and nothing is withheld from an employee's paycheck to pay for the program. Employees do not and cannot make contributions to the fund.

Texas Unemployment Eligibility

The Texas Workforce Commission determines your eligibility for unemployment and the amount of your benefit. To be eligible, you must have become unemployed through no fault of your own. You must also have wages in more than one of the last five completed calendar quarters prior to the calendar quarter in which your claim begins. Your total wages in that period must be at least 37 times your weekly benefit amount, and if you have received unemployment before, you must have earned six times your new weekly benefit amount since the prior claim.

Taxable Income

The unemployment benefit you receive is taxable income. Each January, the Texas Workforce Commission sends Form 1099-G to everyone who received unemployment in the prior year. If you don't receive your form, you can log on to the unemployment benefits services site after January 15 to view a copy of the form. Include this income on your federal income tax return. For example, on Form 1040, enter the amount on line 19 and enter the Texas Workforce Commission identification number as 74-2764775.

Federal Withholding

You can choose to have 10 percent of your gross payment withheld from your unemployment check to pay toward your federal income tax liability. To start or stop having the tax withheld, complete the Federal Income Tax Voluntary Withholding Request form and check the appropriate box. Depending on your total income for the year, you might owe tax to the federal government if you don't have any withheld from your Texas unemployment income.

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