Any income you earn is taxable, including unemployment benefits. The forms you receive at tax time may vary depending on who pays your unemployment income, whether you receive unemployment income from your state or from a supplemental benefit through your former employer. In short, it’s all considered taxable income.
Our guide to unemployment taxes will walk you through how unemployment benefits work and what forms you need to file your taxes.
How Unemployment and Taxes Work
If you lose your job, you may be entitled to unemployment benefits through your state if your separation occurred through no fault of your own (you cannot quit or be fired for gross negligence) and if you meet certain income requirements set by your state.
Your employer pays for unemployment benefits via employment taxes and the benefits are administered by your state. Some states require taxes by employees that also pay into the fund. If you are in the District of Columbia, the taxes are paid into the Federal Unemployment Trust Fund, which administers the benefits.
The U.S. Department of Labor manages the Federal-State Unemployment Insurance Program and several other unemployment insurance programs for laid-off federal employees, ex-service members, those unable to work as a result of a disaster and other benefits for people who have remained unemployed and have exhausted their regular unemployment payments.
States manage this federal program, which uses a mix of federal and state tax-derived dollars to pay a part of your income for 12 to 26 weeks, depending on your state, though it might be extended depending on your state and its restrictions.
The maximum weekly amount you receive for unemployment depends on your state, your former income and how many dependents you have, but ranges from $235 in Mississippi to $795 in Massachusetts.
You may also receive benefits through a supplemental uninsurance benefit (SUB) plan through your former employer or perhaps through your labor union. These benefits are still taxable even if they are not administered by the government. Most SUBs require that you also draw state unemployment benefits to be able to claim SUB benefits. The SUB is designed to supplement your state benefits.
Paperwork Before Your First Payment
When you sign up for unemployment benefits, you can choose to have your federal income taxes withheld for you and submit a W4-V form, or a Voluntary Withholding Request form. Alternatively, you can choose to file quarterly estimated tax payments throughout the year.
The IRS expects taxpayers to pay nearly 90% of their tax upfront through withholdings or estimated payments. If you fail to pay your taxes throughout the year and wait until April 15, you may find that you owe a penalty on top of your regular tax payment.
It’s easiest to request that your state collect withholdings for you, especially if you estimate you will only collect unemployment for a short period of time and don’t want to have to worry about calculating estimated taxes later in the year.
Your unemployment benefits are subject to federal income tax. You will receive a 1099-G form from your state’s unemployment benefit office, which shows how much of your benefit is taxed and what you withheld, if anything.
If you received unemployment benefits through a SUB plan, those benefits should be included on your W-2 as regular wages. If you receive unemployment benefits through a private fund which you pay into (similar to a SUB though not through your employer) you only have to pay taxes on the amount you received over your contributions and you report that income on Form 1040.
Although they administer the uninsurance program, not all states require taxes to be paid on uninsurance benefits. Nine states don’t require taxes to be paid on wages, so if you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming, you’re in luck. California, New Jersey, Oregon, Pennsylvania and Virginia don’t collect taxes on unemployment benefits at all, and Indiana and Wisconsin only tax part of the benefit amount.
If you live in one of the remaining 34 states, you must include your unemployment benefits in your taxable income amount, just as you did for your federal tax return.
Seven cities in the U.S. have separate taxation requirements. If you live or work in Cincinnati, Cleveland, Columbus, Toledo, Detroit, Kansas City or Louisville, you may need to pay municipal taxes on your unemployment benefits.
Filing Taxes When You’re Unemployed
Filing taxes to include your unemployment income is really not much different than filing taxes and having income from more than one source. You only need to gather together your requisite forms and be aware of your available deductions.
Forms You’ll Need
When filing your taxes to include your unemployment income, gather your W-2, 1099-G, 1099 and 1040.
- W-2: You’ll need to file your W-2 from your previous employer as long as you were employed by them at some point in the tax year. If you received unemployment benefits from a SUB, your W-2 will include those benefits as well.
- 1099-G: Your state unemployment agency will mail you this form, which identifies the total amount of benefits paid to you and the amount of federal taxes withheld, if any.
- 1099: If you worked as a contractor or freelancer while you were unemployed, you need to include that income on your taxes. If you received over $600 from a single source, the company you worked for should send you a 1099 form.
- 1040: If you received supplemental unemployment benefits through a private fund that you paid into, you only have to pay taxes on the benefits you received that are over the amount that you paid into the fund. The SUB fund will mail you a 1040 form to inform you of the amount of your taxable benefits.
Areas You’ll Need to Fill on Your Tax Forms
You may have incurred some costs while unemployed and job hunting and some of those costs may be deductible as long as the job you are looking for is within your field. You may be able to deduct costs for printing and mailing your resume, travel to job interviews or to research a job and payments to employment and headhunting agencies.
Unemployment benefits do not count toward your Earned Income Tax Credit eligibility, so if your income outside of the unemployment benefits drops low enough throughout the year, you may qualify for the benefit ranging from $529 to $6,557.
The maximum benefit for the Earned Income Tax Credit varies depending on if you are single or married filing jointly and how many dependents you claim but maxes out at $55,952 for 2019. You cannot have earned more than $3,600 in investment income to qualify for the credit.
When you fill out unemployment forms, make sure you understand the implications so you’re not surprised during tax time. Unemployment benefits are taxable income at the federal level, though not all states will require you to pay taxes on them. It pays to understand how unemployment benefits are taxed and what you need to do to file your taxes.