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Q. We have several employees that have been laid off and are receiving unemployment benefits. They have asked whether they are required to pay taxes on their unemployment benefits.

A. The normal payroll taxes withheld from company-paid wages include federal income tax, state income tax, Social Security and Medicare (jointly called FICA) and federal unemployment tax (FUTA).

Although these taxes are not withheld at the time of payment if an employee is receiving unemployment benefits, the employee must still pay federal income tax and North Carolina income tax on the benefits.

The FICA and FUTA payroll taxes do not apply to unemployment benefits.

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