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.
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Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.
In Michigan they have allowed the suspension of federal and state withholding on unemployment insurance benefit checks to help provide more cash flow to the unemployed.
Pinyo – A further clarification. The spendulus bill of 2009 exempts the first $2400 of 2009 unemployment compensation from federal income tax.
I find it amusing that the government gives you money which you then have to send back to them…
Mr. GoTo I didn’t know this. Thanks for sharing the info.
@RateNerd and Mr. GoTo – I didn’t know about these. Thank you for the update.
Do you have to pay FICA and medicare taxes on unemployment income?
@JamesP – You should check with a tax advisor. Based on my research,unemployment benefits are not subject to FICA (i.e., Social Security and Medicare). You only have to pay income tax.
FYI!!!!
The statement about Michigan suspending federal and state withholding on unemployment is incorrect. The suspension applies on the STATE level only. You will still have to pay taxes on the Federal part.
If I live in South Carolina but collect unemployment from Florida due to prior jobs in 2008 do I pay any Non resident state tax or just Federal and South Carolina State Tax? Any help would be appreciated.
I am listed as an “In trust for” beneficiary on my aunts bank accnt. When I receive this money is it taxed or is it subject to the inheritance laws?
Please help, we received unemployment in 2007 and paid taxes due to the state (NY) that we received the unemployment from. Now, 3 years later, the state which we moved (WV) to in 7 / 07, wants to collect a full year of taxes on that same unemployment, which we already paid. Is this double taxing? Are we required to pay this? How do we know?
I found out the hard way after not having them take out taxes on my unemployment check. I went a full year looking for work in my area of training. I later moved to California and got a knock on my door. It was the IRS and yes I had to pay back the $1,700 in taxes all because I didn’t think I had to! I let them take it out of my taxes for that year which left me with nothing. Live and learn!
i found out i have to pay back my unemployment income for 2009 to Indiana. I paid it back but now how do I fix my joint tax return to show I paid the money back to the state of Indiana? Please help? What forms do I need to fill out?
Years ago I forget what it was , but there was a ruling you can’t tax a tax. wouldn’t it be the same for unemployment?
i get pay from unployment this year.. about 11800 .. so did i have to pay tax also i have to pay child support too
I went 26 years without collecting unemployment. Thousands of dollars taken out of my check for unemployment, which I never collected. Now with the economy so bad, I’m laid off. To me they basically used MY money for 26 years. Now they want to TAX my TAX. It’s not like anyone’s getting rich off of unemployment.
Can I file my tax returns and use my income credits when I drew unemployment 10 months of the previous year? Single father of three doesnt receive support.
Hi, collected SS at age 62, I also collected 24k from unemployment. I know this is over the total amount, but how much will I pay to IRS and will SS lower my monthly benefit thanks so much
Is there a more relaxed Tax table for those of us drawing unemployment benefits? My state only gives me the option to with hold or not with hold, and doesn’t alow us to choose what percentage – it’s a flat 10%. Sure, that might cover the fed’s tax money hunger but where does that leave the state on April 15th? I’ll tell you where, banging on my door @ 8:59:59:59 a.m. on April 16th. Also, what’s the benefit of a stimulus that only bumps you right into the start line of the next tax bracket? I wish republican whiners who… Read more »
Does anyone know if Unemployment Insurance is taxable in Wisconsin? I also am working (working 2 days a week ) and have 2 children. Will my Unemployment Insurance affect my tax refund this year?
My question is: I received unemployment for the entire year of 2010 and did not have taxes taken out of my unemployment. Will I still be able to file my taxes this year and receive my EIC and the tax credit for my 2 children?
I moved to NY in Dec. 2009. For most of 2010 I received Florida unemployment. Is that taxable as a NYS resident or is it untaxable because it’s Florida.
@ jackson you have to file in both states go to a pro and ask if they have ever filed in 2 states before, we got screwed big time when we moved and my husband was drawing ui from another state. It was a big mess the lady had to do 3 different ammendments that she wanted us to pay for because she couldn’t READ that one said PA and ONE said MI even tho we told her over and over there are 2 different states first she filed in MI only then PA only then some how she refiled… Read more »
I AM SO SCARED! I have been laid off since 05/2010. I received unemployment bi-33kly checks $900…. Just recently I received a 1099 showing $0.00 withheld for both state & federal. OMG! My mouth hit the floor…. I did not know about this.. I am a single Mother living check by check and still not able to land a job. I fear I will have no returns or I may not have enough to break even…. If this is the case will the IRS garnish my unemployment check? HELP! 🙁
I worked for 45 years.. paid taxes, voted, contributed to society.. I lost my income when the nonprofit I worked for went under.. I also lost HMO coverage and have enormous hospital bills related to cancer and heart problems.. I took early (63) S/S and get a small disability also.. I was not aware unemployment was taxable.. Does anyone know if I have to pay tax on $10,935 in unemployment? FYI: the combined total income is just under $25k and I am a window with no dependents.. I am so, so stressed and afraid.. I have no other money.. Will… Read more »
We just published an article: What to Do if You Can’t Pay Taxes — I hope this will be helpful to many commenters here that were surprised by the tax implication of collecting unemployment benefits.