Guide to Unemployment and Taxes

Updated for Tax Year 2019


OVERVIEW

The IRS considers unemployment compensation to be taxable income—which you must report on your federal tax return. State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year.


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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—which you must report on your federal tax return. Some states also count unemployment benefits as taxable income.

About 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.

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 must apply for benefits through their state programs. The amount of compensation they receive depends on:

  • the amount of time they worked
  • their earnings
  • the maximum benefit their state allows

Tax impact of benefits

Unemployment benefits are included along with your other income such as wages, salaries, and bank interest. The total amount of income you receive and your filing status will determine if you need to file a tax return.

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 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.

Reporting unemployment benefits on your tax return

You report your unemployment compensation on your federal tax return in the income section. The amount will show up on a specific line of your tax form. Remember to keep all of your forms, including any 1099-G form you receive, with your tax records.

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