Q During 2024, my wife collected worker’s compensation insurance payments for a job-related injury, and I collected unemployment insurance payments for two months. Neither one of us withheld any taxes. Will we be required to report the worker’s compensation and unemployment insurance on our 2024 tax returns and owe taxes?

A Unfortunately, all unemployment insurance benefits you receive from a state agency or the federal government are treated as taxable income. You should receive a 2024 Form 1099-G by Jan. 31, reporting the amount of the unemployment insurance payments you received during 2024. Please note that the unemployment insurance benefits, while taxable for federal purposes, are not taxable to California. You may want to consider having Federal withholding taxes deducted from any future unemployment insurance benefits to help mitigate your potential tax liability.

Supplemental unemployment benefits paid from company-financed funds are taxable as wages and not reported as unemployment insurance compensation. Such plans are usually paid pursuant to guaranteed annual wage plans made between unions and employers. Employer-provided severance packages are also treated as wages.

Unemployment insurance benefits from a private or union fund to which you voluntarily contribute dues are taxable as “other” income on your individual income tax return, but only to the extent the benefits exceed your contributions to the fund. Your contributions to the fund are not deductible.

Now for some good news. You and your wife do not pay tax on worker’s compensation insurance payments for job-related injuries or illness. However, if your employer continues paying your regular salary, he or she can require you to turn over the worker’s compensation payments. Then you would be taxed on the difference between what was paid to you and what was returned.

To qualify as tax-free worker’s compensation insurance, the payments must be made under the authority of a law or regulation that provides compensation for on-the-job injury or illness. Payments made under a labor contract do not qualify as tax-free worker’s compensation insurance.

Barry Dolowich is a certified public accountant and owner of a full-service accounting and tax practice with offices in Monterey. He can be reached at (831) 372-7200. Please address any questions to Barry at PO Box 710 Monterey, CA 93942 or email:bdolowich@gmail.com