While unemployment benefits can be a huge help when you’ve lost your job, at tax time, they can leave you with more questions than answers. Here’s what you should know about your unemployment benefits when it comes to filing your taxes.
Are Unemployment Insurance Benefits Taxed by States and the Federal Government?
Generally, yes. The federal government will tax your unemployment benefits, and most states will as well. Unemployment benefits count toward your income and are taxed by the federal government at rates according to the IRS’ tax brackets.
It’s a bit more complicated when it comes to state taxes. Most states fully tax unemployment benefits just like they would for regular income. Some states don’t tax unemployment income at all, while others only partially tax the benefits. See how your state taxes unemployment benefits here.
Can I Have Taxes Withheld From Unemployment Payments?
Yes. State unemployment agencies allow you to have federal and state taxes taken out of your unemployment checks. The IRS recommends you do this to avoid surprise tax bills. You can set this up when you first apply for unemployment, or at any point while you are receiving it, by filing Form W-4V and sending it to your state’s unemployment agency. You will also have to fill out your state’s withholding form to have state taxes withheld from your benefit. Most states also allow you to do federal and state withholding online via their unemployment websites.
When you sign up for voluntary withholding, your benefits will be withheld at a federal flat rate of 10%, no matter your income bracket. If you choose to not sign up for voluntary withholding, you can also make quarterly estimated tax payments to avoid surprise tax bills.
Important: If you are receiving unemployment benefits, setting up a withholding now may save you from a surprise tax bill next year.
If I Collected Unemployment, What Paperwork Do I Need to File My Taxes?
States that gave you unemployment benefits should send you a Form 1099-G. For those who don’t receive it in the mail, you may need to access the form on your state’s website. This form calculates all the unemployment income you received and tells you how much (if any) was withheld for taxes. This should help you calculate your income when filing your taxes. The IRS also provides special directions for those who repaid part of their 2022 unemployment.
What If My Form 1099-G Is Wrong? If you receive an incorrect Form 1099-G, the IRS recommends contacting the state agency that issued the unemployment benefits to request a revised form. If you’re unable to obtain a corrected Form 1099-G before Tax Day, you should still file an accurate tax return and only report the income you actually received.
In some cases, an incorrect Form 1099-G might indicate that you have been the victim of unemployment fraud, which has been a growing problem. Here is how to recognize if this has happened to you.
Do I Have to Pay to Prepare or File My Taxes If I Receive Unemployment?
It depends on your income and how you choose to prepare your taxes.
If you made under $73,000 in 2022, you are eligible to file your taxes for free. But remember, your unemployment benefits count toward your adjusted gross income. Even if your income surpasses $73,000, some tax preparation services now include a Form 1099-G as part of a “simple” tax return, which they will let you file free of charge. And the IRS offers its free fillable forms — an electronic version of IRS paper forms — to anyone, regardless of income.
Important: So-called free tax preparation websites are often trying to push you to pay them more money. You can find truly free filing options on the IRS website.
Do I Have To Pay Unemployment Back?
No. Unemployment benefits are yours to keep, except for the amount you may owe in taxes. But make sure you’re getting the right amount.
In a few cases ProPublica found, simple mistakes have led states to overpay unemployment recipients and then demand huge sums of money back. A bill to remedy this was proposed in 2020, but as of January it’s still in committee.
Did the Stimulus Bill Change How Unemployment Is Taxed?
Yes, but only for 2020 unemployment benefits. The American Rescue Plan Act of 2021 changed the tax code so that the first $10,200 of unemployment benefits you received in 2020 was free of federal taxes. That meant that only the money you received over $10,200 counted toward your taxable income.
Congress did not renew this tax relief after 2020. As a result, all unemployment benefits, except for those received in 2020, are treated as income and taxed.
About this guide: ProPublica has reported on the IRS, the Free File program and other tax topics for years. ProPublica’s tax guide is not personalized tax advice. Speak to a tax professional about your specific tax situation.
Kristen Doerer is a reporter in Washington, D.C. Her writing has appeared in PBS NewsHour, The Guardian and The Chronicle of Higher Education, among other places. Follow her on Twitter at @k2doe.
