Do You Have to Pay Taxes On Unemployment Income?

The U.S. unemployment rate continues to remain high at 9.1%. This means that many Americans are collecting their unemployment insurance payments, and many are doing so for the first time ever. Now that the tax season is here, some people are left wondering if unemployment payments are taxable or not. I had the same question when I worked on my father’s tax returns last year. The short answer is yes, unemployment income is taxable. Since unemployment income is treated as normal income, the amount is taxable.

Here’s an excerpt form the Internal Revenue Service web site:

Unemployment compensation is includible in gross income. You must report unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state. It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund…

If you received unemployment compensation during the year, you should receive Form 1099-G (PDF) showing the amount you were paid. Any unemployment compensation received during the year must be included in your income, unless you contributed to the fund…

If you are in the process of filing your tax returns and are wondering if you have to pay taxes on unemployment compensation, I hope this clears it up.

What to Do if You Can’t Afford to Pay

If this is the first time you learn about this, it’s likely that you might not be able to pay taxes owe this year. To help you better understand how to deal with this, please read: What to Do if You Can’t Pay Taxes.

Update for 2010-2011: According to the IRS web site (information updated on December 09, 2010), unemployment compensation is includible in gross income — meaning it is taxable.

About the Author

By , on Jan 26, 2011
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo have enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

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Leave Your Comment (74 Comments)

  1. Pinyo says:

    @Cat – is it possible that Florida withheld Federal income tax only and Georgia is imposing its state tax on your unemployment benefit?

    @Krystyna – There’s not enough information there because you didn’t say how much your employer withheld last year. In any case, it’s a big enough difference that I would get a tax pro to go over your numbers (if you did hire someone, then get a second opinion). If you want to save money, you can try free online software.

    @John – I think it’s best to consult a local tax preparer. That’s what I did when I moved from NY to VA. My preparer prorated my tax payment according to how long I lived in each state and filed a return for each state.

    @Bo – CA doesn’t tax unemployment income, see: http://www.taxes.ca.gov/Income.....employment

    @Brittany – I’ve read somewhere that you can adjust the amount reported to the IRS if you paid back the benefit. If you haven’t, then you have to report it as an income.

    @Randy – It sounds like you’re correct, but I don’t know the answer.

    @Ashley – It depends on your filing status, # of dependents, what other credits and deductions you’re eligible for, and whether or not you will owe state tax on the $11,800.

    @Dina – Yes, he still has to file his tax returns. In general, it’s better to file jointly unless you have a really good reason not to.

  2. Dina says:

    Hi, my husband has 2 jobs, and on one he only made $6000.00 and just took out $4.40 out of federal, does he still have to do his taxes for this job? and another question can i do my taxes seperate with my daughter as a dependent?

  3. Ashley says:

    I collected unemployment since April of 2011 totaling 11800 dollars, I did have a part time job also and claimed that when doing my unemployment biweekly. I also had 10% taken out of my unemployment for taxes could someone please tell me if I will owe any money this tax season? Thank you.

  4. Randy says:

    According to IRS Pub. 17, “If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income.” Before I lost my job, I contributed $200 from my paychecks to the mandatory NJ state unemployment fund. After losing my job, I received $1000 in unemployment benefits, and received a 1099-G showing $1000 in Box 1. I am NOT itemizing, so none of my contributions to the NJ unemployment compensation program are deductible. Therefore, can I enter only $800 on line 19 of Federal Form 1040 (since $1000-$200 = $800)?

  5. Brittany says:

    I had unemployment for a week or two in 2011 before my claim was denied. I owe unemployment about 400 dollar. Do I still need to claim it if I owe it back

  6. Bo says:

    Moved from CA to TX and received unemployment wages from CA in 2011. I know TX has no state tax. Does CA take tax on unemployment income and do I have to pay CA tax on my unemployment wages? Help???

  7. John says:

    MA is paying me unemployment income while I’m now residing in SC while getting paid by MA. Do I just report the income on my state tax return to MA or is it split up by the time I resided in each state?

  8. Krystyna Dover says:

    Ok, I have read many of the post on here but I am still a little confused… So here is my question. According to my 1099-G my unemployment compensation was 6105.00 and fed tax withheld was 594.00 Since I also worked part time during some of there year I also make 3949.00 from employer with only 18.00 fed taxes taken out. I was a full time student and have 3 dependents.. So my question how is it if last year from my employer I made 11,249.00 and got a refund of 6916.00 and this year including the unemployment I made 10054.00 and I am only getting back 3500.00.. That is a huge difference from last year.. Am I doing something worn here?

  9. Cat Owens says:

    I collected unemployment last year. Was laid off in Florida then moved to Georgia. They are taking taxes out, so why do i have to have taxes out of the same money from the State of Georgia? That is being taxes twice?

  10. Charlie says:

    Leaving this info here for anyone in my specific situation:

    I am single and have no dependents. I moved from California (where I was a resident for 30 years) to Montana in April of 2011. I received California Unemployment the rest of 2011 and did not earn any income from or in the State of Montana.

    I just called the Montana Department of Revenue and was informed that, as a single person, if my Federal taxable income was $4500 or less, not including unemployment income, that I do not have to file a Montana tax return.

    If you are in a similar situation (different states, though) it helps to call one or both state’s Revenue Departments to get info. Good luck.

  11. Pinyo says:

    @Sam – Assuming you would normally get $4,400 back and you now owe $2,000 in taxes due to unemployment, then yes, your refund would be reduced to about $2,400.

    @OV – According to the IRS, you can deduct medical expenses exceeding 7.5% of your adjusted gross income. See: http://www.irs.gov/taxtopics/tc502.html

    @Dena – You will have to ask a local tax advisor. I checked their FAQ — http://hawaii.gov/labor/ui/pdf.....-14-09.pdf — and it doesn’t say anything about out-of-state unemployment income.

    @Isaca – You may have received $9,000 from selling used stuff on eBay, but you have to deduct the cost basis for these items (so your profit is likely much lower than $9,000). You can use this tool to determine if you are eligible for the Child Tax Credit: http://www.irs.gov/Individuals/Child-Tax-Credit

  12. Isaca says:

    Hi, I received Unemployment during all year 2011 about $11,000 in Florida( according to my 1099G no tax was withheld), I made some extra cash selling used stuff on Ebay ($9,000) I have one dependent my son and I am divorced not receiving child support or any help from his father. Will I still qualify to get The Child Tax Credit ???

  13. Dena says:

    I filed for unemployment in California. Then a few months later, I moved to Hawaii with my husband when he got a job there. So I have been collecting CA unemployment in HI. I know I have to pay Federal income tax on it. But CA doesn’t tax unemployment. I can’t figure out whether I should file state taxes in HI or CA. Maybe both? File nonresident taxes in CA for the unemployment, and file in HI for my husband’s income?

  14. OV COBOS says:

    Hi. During 2011 ( July) the company that i worked layoff half of the employees. Since then I been collecting Unemployment. i live in Illinois and I have a (5 Year Old son). During 2011 i have over $20,000 dlls of invoices that i paid from my surgery and son surgery. How can i deduct this amount from my income tax, also i receive over 560.00 weekly since Middle of July – December 2011. How can i reduce expenses from my (6 months of work income- unemployment- surgeries)…

  15. sam says:

    i was wondering i owe 2000 in taxes for unemployment but i claim my son..i usually get 4400 back after i claim him and do my taxes..does that mean when i file that unemployment would take 2000 from my 4400 that i would get back?..

  16. Pinyo says:

    @Ashley – I did some research and according to this: http://www.wwwebtax.com/income.....oyment.htm — you have to pay taxes on the unemployment benefits received this year. Then you can deduct the amount repaid next year.

    @Laurie – I can’t answer your specific situation, but you could try using free tax filing software, e.g., both TurboTax and H&R Block offer a free option. You could enter all the information and probably figure out the answer to your question in about 30 minutes.

  17. Laurie says:

    For the past yr Ive collected untaxed unemployment benefits, I have 2 children, 1 goes to college as well as myself. I’m really concerned that at tax time i wont receive a refund. i received $17,000 from EDD, no other income. should I be worried?
    Please Help
    Thank You

  18. Ashley says:

    I received unemployment for a short period last year but after an appeals trial, my ex-employer denied it and now i am having to pay back the full amount. Do i still have to pay taxes on it since i am repaying the unemployment?

  19. Pinyo says:

    @Nai – Your tax preparer should be able to help you file an amended tax return. You might have to pay penalty on top of the taxes owe, but it’s better to correct this now.

    @Rosa – It’s best to check with your state unemployment office.

    @Miguel – Yes, you have to file your tax return and pay taxes if they were not withheld.

    @Brenda – It’s best to ask a tax preparer that’s familiar with the local tax law. In general, you have to pay both state and federal income taxes. Since Kentucky and Indiana are reciprocal states — http://www.payroll-taxes.com/s.....ndiana.htm — you might ended up paying only Indiana state tax (but don’t quote me on this).

    @Lu P. – It’s the same as your regular income tax rates.

  20. Lu P says:

    What is the tax rate for unemployment benefits received?

  21. Brenda says:

    I lived in Indiana all of 2011 and collected unemployment from Kentucky , that is the only income I had. I received my 1099 today and where it says state name and state identification number are blank. How do I know which state I paid the taxes to?

  22. Miguel says:

    Hi, I started unemployment in January of 2011 and i collected a total of $10,980, if i haven’t work or earn any money in 2011 do i have to file my tax return?? if i do have to file my taxes do i have to return 10% of the total or i have to pay everything? thanks.

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