Guide to Unemployment and Taxes
Unemployment compensation is considered taxable income by the IRS, which means you need to include those payments when you file your tax return. Some states also tax unemployment compensation. If you have questions about unemployment and taxes, use this guide to learn more about reporting unemployment income, filing and correcting your tax return, and more.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- The IRS and some states consider unemployment compensation to be taxable income, that you are required to report on your federal tax return.
- Box 1 of Form 1099-G “Certain Government Payments,” from your state unemployment agency shows the amount of compensation to report. Keep this form with your tax records.
- Report your unemployment compensation on Schedule 1 of your federal tax return in the “Additional Income” section and carry the information to your main Form 1040.
- If you choose to have income tax withheld from your benefits, the total federal tax withheld will appear in Box 4 of Form 1099-G, and the state tax withheld will appear in Box 11.
What is unemployment compensation?
Unemployment compensation is a form of monetary assistance provided by the federal and state governments to people who are out of work. These benefits are mostly funded by taxes that are paid by employers at the federal and state levels.
Is unemployment income taxable?
If you received unemployment benefits this year, you can expect to receive a Form 1099-G “Certain Government Payments” that lists the total amount of compensation you received. The IRS considers unemployment compensation to be taxable income—and requires that it be reported on your federal tax return. Some states also count unemployment benefits as taxable income.
Who's eligible for unemployment benefits?
Generally, employees who are laid off or who lose their jobs through no fault of their own typically qualify for unemployment benefits. Taxpayers who want to receive unemployment compensation can apply for benefits through their state programs. The amount of compensation they receive typically depends on:
- the amount of time they worked
- their earnings
- the maximum benefit their state allows
How are unemployment benefits taxed?
Unemployment benefits are included along with your other income such as wages, salaries, and bank interest (For tax year 2020, the first $10,200 of unemployment income was tax free for taxpayers with an AGI of less than $150,000 regardless of filing status). The total amount of income you receive, including your unemployment benefits, and your filing status determines if you need to file a tax return.
TurboTax Tip:
Use the TurboTax Unemployment Center to learn more about unemployment benefits, insurance, and eligibility.
What happens if you forget to report your unemployment income?
If you forget to report unemployment income, you could face penalties. To avoid penalties, you should file an amended tax return.
To amend your tax return, use Form 1040-X. When filing your amended return, you’ll need to include Form 1099-G.
What is Form 1099-G?
State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year. On this form, you’ll see the total amount of your compensation reported in Box 1.
When you receive benefits, you can usually choose to have income taxes withheld from your compensation to avoid owing a large amount of tax on your tax returns. If you choose to have income tax withheld from your benefits:
- The total federal tax withheld will appear in Box 4.
- The state tax withheld will appear in Box 11.
Typically, you should receive your 1099-G by January 31.
Some states will automatically send Form 1099-G via mail, while others will deliver the form based on the delivery option you’ve selected.
If you’ve chosen to receive your 1099-G electronically, you can find it on your state’s unemployment agency website.
How do you report unemployment income without Form 1099-G?
If you haven’t received Form 1099-G, or you’ve lost the one that was sent to you, you can view that information on your state’s unemployment agency website. Once you log in, you should be able to request another one.
What if your 1099-G is incorrect?
If the unemployment income is incorrect on Form 1099-G, you may be able to correct it by reaching out to your state’s unemployment agency. Once you’ve contacted them, they can issue a corrected Form 1099-G and update the IRS.
If you’ve received an incorrect Form 1099-G or you received one even though you didn’t claim unemployment benefits, you might be a victim of unemployment fraud.
What do you do if you’re a victim of unemployment fraud?
If you think you’ve been a victim of unemployment identity fraud, you’ll need to report it to your state’s unemployment agency. They’ll handle corrections, but in the meantime, you can:
- Move forward with filing your taxes.
- Report the correct unemployment income.
- Check your credit report and accounts for fraudulent activity.
How do you report unemployment benefits on your tax return?
You report your unemployment compensation on Schedule 1 of your federal tax return in the Additional Income section. The amount will be carried to the main Form 1040. Remember to keep all of your forms, including any 1099-G form you receive, with your tax records.
If you use TurboTax to file your taxes, we’ll ask about your unemployment income and put the information in all the right tax forms for you.
TurboTax is here to help with our Unemployment Benefits Center. Learn more about unemployment benefits, insurance, eligibility and get your tax and financial questions answered.
