Oregon Tax Consultants Practice Exam

What is the tax treatment for union unemployment benefits paid from a special union fund?

1. They are fully taxable

2. They are exempt up to the amount of contributions

3. They are partially tax-exempt

4. They are not reported to the IRS

The correct answer is: They are exempt up to the amount of contributions

Union unemployment benefits paid from a special union fund are treated in a specific way for tax purposes. These benefits are exempt from taxation up to the amount that corresponds with the contributions made by the employee to the fund. This means that any benefits received that exceed the amount contributed by the employee would be subject to taxation. In general, unemployment benefits can vary in tax treatment depending on their source and the circumstances of their distribution. In the case of special union funds, the contributions made by the union members into the fund are a significant aspect of the tax exemption. The rationale behind this treatment lies in the principle that amounts you pay into a fund (like union dues) should not be taxed when withdrawn as benefits, reflecting the employee's prior contributions. This exemption aligns with broader tax rules that aim to prevent double taxation of this type of income. It's important to be aware of how such exemptions apply to union-related benefits, as it can impact both the income reporting nuances for union members and their overall tax liability.