Unemployment compensation is generally taxable
If you receive unemployment compensation, it’s included in your federal taxable income. The agency that paid your benefits should provide Form 1099-G, Certain Government Payments, showing:
- Box 1: Unemployment compensation paid to you
- Box 4: Federal income tax withheld, if any
Some states provide Form 1099-G electronically instead of mailing a paper copy.
Unemployment and filing requirements
Although there may be other circumstances to consider, whether you need to file depends primarily on your:
- Total gross income
- Filing status
- Age
- Dependent status
Unemployment benefits alone may not put you above the filing threshold, but benefits combined with wages you earned earlier in the year or other taxable income could.
Withholding taxes from unemployment benefits
Federal income tax generally isn’t withheld from unemployment compensation. You have two main options for paying federal tax on your benefits:
- Request voluntary withholding: Submit Form W-4V or a similar form provided by the payer. Federal withholding on unemployment compensation is generally 10%.
- Make estimated tax payments: You may need to make quarterly estimated tax payments if you don’t have enough tax withheld.
Either option can help reduce the amount you may owe when you file.
State taxes on unemployment vary
Your state may treat unemployment benefits differently from the federal government. Some states tax unemployment compensation, while others exclude some or all of it. Check your state tax agency’s current rules to determine whether state income tax applies.
Missing or incorrect Form 1099-G
If you didn’t receive Form 1099-G in the mail, check your state unemployment agency’s website for an electronic copy.
If your 1099-G shows an incorrect amount:
- Contact the state agency that issued the form and request a correction.
- Report only the unemployment compensation you actually received on your return, even if a corrected form doesn’t arrive before you file.
If the form shows benefits you never received, it may be a sign of unemployment identity theft. Report the issue to the state agency that issued the form and request a corrected Form 1099-G.
Even if your income falls below the filing threshold, filing may still be worthwhile if federal tax was withheld from your benefits or you qualify for a refundable credit based on your other income or circumstances.
