Is Unemployment Taxable?

If you’ve found yourself out of work and filing for unemployment benefits for the first time this year, you might find yourself wondering if you’re responsible for paying taxes on that income.

So, is unemployment taxable? The short answer is, typically, yes for federal taxes. Whether unemployment income is taxable at the state level depends on the state’s income tax laws.

If you’re in unfamiliar tax territory, don’t worry; we’ve outlined the basics of unemployment and how it’s taxed.

Key takeaways

• Is unemployment taxable? The IRS and some states consider unemployment compensation to be taxable income that you are required to report on your annual federal taxes.
• If you receive unemployment income, you can choose to have federal and state income tax withheld from your unemployment checks.
• Box 1 of Form 1099-G will show your total unemployment compensation payments for the year. Keep this form with your tax records.
• The IRS and state unemployment agencies recommend having taxes withheld from unemployment benefits to avoid surprise tax bills.

Is unemployment taxable?

Believe it or not, unemployment benefits are counted as income and are taxable on your federal tax return. As far as your state tax return, it varies from state to state.

Federal income tax rates are progressive. This means that as taxable income increases, it’s taxed at higher rates. Different tax rates are imposed according to IRS tax brackets, or ranges, which are based on filing status and income levels. 

There is one variable, however. You may not need to file a federal tax return if your gross income doesn’t meet the federal income limit.

For individuals under 65, the income limits for tax year 2024 (the taxes you typically file in 2025) are:

• $14,600 for single filers
• $29,200 for married filing jointly or qualifying surviving spouses
• $21,900 for head of household filers

If you’re married filing separately, the income threshold is $5, no matter your age. That said, if you had federal taxes withheld from your income, then you might still want to file since you may see a tax refund.

If you need further help determining what qualifies as taxable vs. non-taxable income, you may want to consult a tax expert for help filing and more tax tips for unemployment income.

Can you have taxes withheld from unemployment income?

If you receive unemployment income, you can choose to have federal and state income tax withheld from your unemployment checks. Usually, the IRS and state unemployment agencies recommend having taxes withheld from unemployment benefits to avoid a surprise on your tax bill.

This can be set up when you first apply for unemployment or anytime you are receiving unemployment benefits by filing Form W-4V, Voluntary Withholding Request, and submitting it to your state’s unemployment agency.

How should unemployment benefits be reported?

If you received unemployment benefits, you’ll receive a Form 1099-G that details the amount of income you’ve received from the government as well as any taxes taken out.

On Form 1099-G, Box 1 will show your total unemployment compensation payments for the year. You’ll need to report your total unemployment compensation payments as taxable income on Form 1040 to ensure you’re in compliance with federal tax requirements.

What if you don’t receive a 1099-G or it’s incorrect?

When it comes to unemployment and your taxes, it’s important to have all the right paperwork. If you don’t receive a 1099-G or you’ve lost it, go visit your state’s local unemployment website and sign into your account to view a digital copy of your 1099-G or to request another one to be sent to you.

The same goes for receiving an incorrect Form 1099-G. You might be able to correct it by reaching out to your state’s local unemployment agency and having them issue a correct form and update the IRS.

Can I still get a tax refund?

This might be a good spot to remind you that if you request unemployment benefits, you do have the option to have taxes withheld, so you won’t owe taxes. Whatever your personal decision may be, it’s good to keep in mind that although you may be going through unemployment, there are still ways to keep your head above water.

You may also be eligible for valuable tax deductions and credits, which are crucial for getting the maximum tax refund. 

Tax deductions can reduce your taxable income, which can decrease the amount of tax you owe.  On the other hand, tax credits are subtracted from your tax liability, directly reducing the amount of tax you owe.

Whether you’re unemployed on benefits, a student, a homeowner trying to go green, or just a hardworking individual trying to make ends meet and save a buck, understanding the numerous tax credits available can help you save and lighten the load when it comes time to pay your taxes.

TurboTax will ask you simple questions and give you the tax deductions and credits you are eligible for based on your answers. As you plan for your taxes, keep track of receipts and necessary documents throughout the year to ensure you have everything you need to back up the write-offs you claim.

What happens if you forget to report unemployment income?

Since unemployment benefits are taxable, if you forget to report unemployment income on your tax return, the IRS will generally recalculate your tax liability by including the missing income and determine the amount of taxes they believe you owe. This could potentially result in penalties and interest.

If you realize you didn’t include something on your tax return, you can file an amended tax return using Form 1040-X and add the missing information to avoid any additional penalties and interest.