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Are Unemployment Benefits Taxed? The Complete Guide

Last updated 03/21/2024 by

Did you receive unemployment benefits this year? If so, you’ll have to report those payments on your federal income tax return. But how are unemployment benefits taxed? Will you owe taxes on your unemployment insurance benefits? Read on to learn everything you need to know about how unemployment benefits affect your taxes.

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What are unemployment benefits?

Unemployment benefits are the financial compensation you receive while unemployed. Whether you qualify and how much you get depends on your state of residence.
There are several types of unemployment benefits, including:
  • Benefits paid by your state or by the Federal Unemployment Trust Fund.
  • Railroad unemployment compensation benefits.
  • Disability payments from a government program paid as a substitute for unemployment compensation.
  • Trade readjustment allowances under the Trade Act of 1974.
  • Unemployment assistance under the Disaster Relief and Emergency Assistance Act.
For tax purposes, worker’s compensation does not fall under the umbrella of unemployment insurance benefits. Workers’ compensation benefits are usually tax-free. However, a portion may get taxed if you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI).

How are unemployment insurance benefits taxed?

Unemployment benefits are considered taxable income. As such, you must report and pay taxes on unemployment benefits as though they were wages. If you received unemployment benefits this year, you will receive a Form 1099-G in the mail. This form will tell you how much money to report on your tax return.
You must also report any benefits from regular union dues paid to you as an unemployed member of a union. However, other rules apply if you contribute to a special union fund, and your contributions are not deductible. If this applies to you, you need only report the amount you received that exceeds your contribution.

What is the tax rate on unemployment benefits?

Unemployment benefits are considered taxable income. As such, your tax rate will depend on whether or not you had any other income this year and on on the value of your total income (including unemployment benefits).
For the 2019 tax year, you can expect the following tax rates:
Tax rateSingleMarried, filing jointlyMarried, filing separatelyHead of household
10%$9,700 or less$19,400 or less$9,700 or less$13,850 or less
12%$9,701 to $39,475$19,401 to $78,950$9,701 to $39,475$13,851 to $52,850
22%$39,476 to $84,200$78,951 to $168,400$39,476 to $84,200$52,851 to $84,200
24%$84,201 to $160,725$168,401 to $321,450$84,201 to $160,725$84,201 to $160,700
32%$160,726 to $204,100$321,451 to $408,200$160,726 to $204,100$160,701 to $204,100
35%$204,101 to $510,300$408,201 to $612,350$204,101 to $306,175$204,101 to $510,300
37%$510,301 or more$612,351 or more$306,176 or more$510,301 or more
However, if you opt to have federal taxes withheld from your unemployment benefits from the start, you won’t have to pay any additional taxes on your benefits. If you choose to go this route, your benefits be withheld at a flat rate of 10%.

How do you file unemployment benefits?

If you received unemployment benefits this year, you should get a Form 1099-G in the mail. This form will detail the total value of your unemployment compensation for the year. When you file your federal tax return, add your benefit payments to the total income in your Form 1040.
Alternatively, if you’d rather not owe too much on your benefit payments, you can choose to have federal income tax withheld from your unemployment payments.

What about unemployment benefits and state income tax?

The taxation of unemployment benefits on the state level varies. Of the 41 states that tax wage income, unemployment benefits are exempt in five states: California, New Jersey, Oregon, Pennsylvania, and Virginia. Two states, Indiana and Wisconsin, partially exempt a fixed dollar amount of benefits from state income tax but tax the rest. In the remaining states, the entire amount is taxable, just like with your federal tax return.

How can you minimize your losses?

Unemployment benefits are taxed, and you can’t get around that. However, you can minimize your losses with other tax breaks. Try the following to maximize your savings this tax season:

Check out the Earned Income Tax Credit

If you’re unemployed, your gross annual income is probably lower than it would have been if you’d kept your job all year. As such, you may be eligible for the Earned Income Tax Credit (EITC). This tax credit is available for earners who have held a job for some portion of the year and made less than a set amount of money for the year. Check out this chart to find out whether you qualify:
Maximum AGI for (single or head of household filing status)Maximum AGI (for married filing jointly)Number of childrenMaximum EITC
$50,162$55,9523 or more$6,557
If you qualify for the EITC, you can deduct that credit from your taxable income, and pay that much less in taxes this year.

Consider withholding federal income tax

This tip is retroactive, so that it may be too late for this year. But if you’re still receiving unemployment benefits next year, you should choose to have federal income tax withheld from your unemployment benefits. You can make this choice using Form W-4V, a Voluntary Withholding Request.
Why would you want to withhold taxes from your unemployment benefit payments? Because if you do so, you won’t owe the IRS anything on your unemployment money when tax season rolls around. It’s a great way to avoid spending money that isn’t yours. Plus, if you decide to withhold taxes from your unemployment benefits, you won’t have to make quarterly estimated tax payments. And since the tax rate for unemployment benefits is only 10%, it shouldn’t make too big of a dent in your unemployment checks.

Ready to get started?

Tax season can be challenging, especially if you’re already dealing with the trials and tribulations of unemployment. But don’t worry — there is help available. Compare top tax preparation firms to find the company that best suits your needs and your budget. These experts can demystify your tax return and help you get the most out of tax season.
Or if unemployment has hit you too hard and you can’t afford to pay your taxes, compare tax relief firms here. Tax debt can be a serious burden if left unchecked. You should get ahead of it before it grows beyond your control.

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