Tax Tips for Union Workers

Are you over-paying your taxes?

Strange as it may seem, the Internal Revenue Service wants you to keep every dime to which you are entitled. Unfortunately, many taxpayers do not get their full refund simply because they fail to itemize and take advantage of tax-breaks. This fact is supported by a 2001 Government Accounting Office study in which it found that the average overpayment was $610.00 (see Resources).

As a union member, you want to avoid falling into the category of taxpayers who overpay their taxes. The process of minimizing your tax liability starts by itemizing your deductions instead of taking the standard deduction.

The standard deduction frequently works to your disadvantage as it is based on household "averages," which may or may not apply to your particular situation. It will require an investment of more time and effort on you part to itemize your deductions, but the payoff is well worth the investment.

Union benefits and union expenses

Your union expenses and benefits play an important role in determining what you report as income, and what you report as deductions. As a general rule, union benefits are taxable as income and must be reported on your tax return.

According to the IRS, the most common union benefits that must be reported as income are the following:

  1. Unemployment benefits paid to you by the union from regular union dues to which you make contributions.
  2. Unemployment benefits paid to you by your employer resulting from a collective bargaining agreement between your union and your employer.
  3. The difference between the unemployment benefits paid to you from a separate union fund to which you contribute and the amount of money you paid into the fund.
  4. Strike and lockout benefits paid to you in cash, and in-kind benefits (property and tangible goods at fair market value) paid by the union. These benefits are exempt if you can clearly show you received them as gifts rather than compensation.

There is a lot of confusion about the treatment of union payments on the tax return. The following will hopefully clarify some of the confusion.

Union dues, fees, contributions and other payments you made to your union must be reported as income on your tax return.

Include your union dues along with other union fees under "miscellaneous deductions." These deductions become allowable when they exceed the threshold of 2 percent of your adjusted gross income.

To put this in more simplified terms: The first step is to include your union payments as income on your tax return. The second step is to claim your union fees as a deduction in the miscellaneous deduction section of your tax return.

It is important to distinguish between union payments and union fees. Union fees include your dues, fees and assessments. These payments are deductible because they directly relate to your main reason for union membership, which is to improve your wages.

Your union payments also include contributions, which may not be tax deductible. Depending upon the nature of the contributions, they may be deductible as trade or business expenses if the are routine and necessary in the conduct of your trade or business.

Your union may be required to inform you if the contribution(s) they are soliciting from you are or are not tax deductible. One common misconception is that contributions for political and lobbying activities are tax deductible. They are not. These are non-deductible items, which should not appear on your tax return as being otherwise.

Given that your total annual union payments may represent a substantial bite out of your income, it may be wise to speak with your union officials to get a clear understanding of your union payments that are deductible and those that are not.

Do not forget to claim your tax credits

Finally, do not forget to claim tax credits to which you are entitled. You get far more bang from a tax credit than from a tax deduction. Tax credits give you a dollar for dollar reduction in your tax liability. Tax deductions only provide a deduction as a percent based on your tax bracket. Examples of tax credits are: first time home buyers tax credits and President Barack Obama's American Opportunity tax credit. The latter allows you to take a tax credit for textbook and course material expenses exceeding the $5,000 educational expenses threshold not covered by scholarships or other kinds of student aid. These are just two of the tax credits for which you may be eligible. Do your due diligence to see if you qualify for any more.