Guide to Unemployment and Taxes
Key Takeaways
• The IRS and some states consider unemployment compensation to be taxable income, which you must report on your federal tax return.
• The amount of compensation to report will be located in Box 1 of Form 1099-G “Certain Government Payments,” which your state unemployment division will issue to you. 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.
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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 typically depends on:
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- 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 (For tax year 2020, the first $10,200 of unemployment income was tax-free for taxpayers with an AGI of less than $150,000). The total amount of income you receive, including your unemployment benefits, and your filing status will determine if you need to file a tax return.
TurboTax Tip: Use the TurboTax Unemployment Benefits Center to learn more about unemployment benefits, insurance, and eligibility.
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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.
Reporting 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.
