Are Unemployment Benefits Taxable?

At the end of the year that you’ve received unemployment benefits, you’ll get a Form 1099-G (and so will the IRS) reporting what you’ve been paid.

To enter the amount you've received in TurboTax, go to the Federal Taxes tab, select Wages & Income, then scroll down to  section "Unemployment and click Start, as shown below.

(Note: In prior years, unemployment was reported in a different income section in the product.)

If you received income from a private unemployment fund - to which you voluntarily contributed - your income won't be taxed up to the amount you contributed. Above that amount, the income is considered taxable, and must be reported on your tax return as "other income."

If you're worried about being stuck with a big tax bill on your employment income when you file your taxes, the IRS offers a way to avoid that. 

Fill out Form W-4V to have 10 percent of your benefits withheld for federal income taxes. You can do this by typing your information directly on the form online, but then you need to make a copy and sign it. Send it to your state unemployment office.

Depending on your circumstances, you might even be required to make quarterly estimated income tax payments, because you’re no longer having taxes withheld by your employer.

Estimated taxes are what the IRS expects people to pay when their income is not subject to withholding, such as investment or self-employment income. It's typically paid four times a year.