Unemployment benefits count as income the IRS taxes
Yes, unemployment income is taxable. The federal government treats it as ordinary income, which means you owe federal income tax on the full amount you receive. Most states also tax unemployment benefits, though a handful do not. You do not pay Social Security or Medicare tax (payroll tax) on unemployment, but the income still reduces your tax refund or increases what you owe when you file.
The amount you receive is the amount you report. If you got $500 in unemployment for a week, you report $500 as income — there is no deduction or exclusion that makes part of it tax-free. The only exception is a temporary one: under the American Rescue Plan, up to $10,200 of unemployment received in 2020 was excluded from federal taxable income for people whose modified adjusted gross income was under $150,000. That rule applied only to 2020 and only to that specific year's benefits.
Key Takeaways
- You owe federal income tax on 100 percent of unemployment benefits received, and most states tax it as well.
- The IRS does not require you to have taxes withheld from unemployment, but you can request it when you file your claim or later.
- If you do not have taxes withheld, you may owe a lump sum when you file your return, or you may get a smaller refund than you expected.
- You will receive a Form 1099-G in January or February showing the total unemployment you received in the previous year.
- Unemployment income counts toward your total income for tax bracket purposes, which can affect credits and deductions you are may have access to to.
How withholding works and why it matters
When you file for unemployment, you have the option to have federal income tax withheld from your payments. The standard withholding rate is 10 percent. If you choose withholding, the state unemployment office deducts that amount from each payment before sending you the rest. For example, if your weekly benefit is $400 and you request withholding, you receive $360 and $40 goes to the IRS.
Withholding is optional, but it is usually the simpler choice. If you do not request it, you will owe the full tax bill when you file your return. Many people who receive unemployment without withholding are surprised by how much they owe in April. Withholding does not change the total tax you owe — it just spreads the payment across the year instead of asking for it all at once.
You can request withholding when you first file your claim, or you can contact your state unemployment office later to start or stop it. The process varies by state. Some allow you to change it online, others require a phone call or form. If you are already receiving benefits without withholding and realize you should have it, contact your state office as soon as possible — they can usually explore it to future payments.
State taxes on unemployment vary widely
Thirteen states do not tax unemployment benefits at all: Alabama, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Nevada, North Carolina, Pennsylvania, and Texas. If you live in one of these states, you owe only federal tax.
Every other state taxes unemployment as income. The tax rate depends on your total income and your state's tax brackets, just like wages. Some states allow you to request withholding separately from the federal option. Others automatically withhold at a flat rate. A few do not offer withholding at all, which means you have to pay the tax yourself when you file your state return.
If you moved during the year or worked in one state and received unemployment from another, the rules get more complicated. Generally, you owe tax to the state that paid the benefits, not necessarily the state where you lived. Check your state's unemployment office website or call to confirm what you owe.
Understanding the Form 1099-G you will receive
In January or February of the year after you receive unemployment, your state will mail you a Form 1099-G. This form shows the total unemployment benefits you received in the previous calendar year, broken down by state if you received benefits from more than one. Box 1a shows the total unemployment compensation. Box 2 shows federal income tax withheld, if any.
You must report the amount from Box 1a on your federal tax return, even if you did not receive a Form 1099-G. If the form is lost or delayed, you can contact your state unemployment office to request a copy or get the information you need. Keep the form with your tax records.
If the amount on the form is wrong — for example, if it includes a payment you returned or a duplicate entry — contact your state unemployment office to request a corrected form. Do not ignore the error and report a different number on your return. The IRS receives a copy of the same form and will flag a mismatch.
How unemployment income affects your tax refund or bill
Unemployment counts as income for calculating your tax bracket and determining which credits and deductions you can claim. If you received unemployment and also had wages, your total income is the sum of both. This can push you into a higher tax bracket or reduce credits like the Earned Income Tax Credit (EITC) or the Child Tax Credit.
For example, if you earned $20,000 in wages and received $8,000 in unemployment, your taxable income is $28,000 (before standard deduction and other adjustments). That higher total income might reduce a credit you would have received if you had only the wages.
If you had taxes withheld from unemployment and also had an employer withhold taxes from wages, your total withholding might cover your full tax bill. In that case, you get a refund. If withholding was not enough, you owe the difference. If you had no withholding from unemployment and no wages, you may owe a significant amount in April.
What to do if you cannot pay the tax you owe
If you file your return and owe tax on unemployment income but cannot pay it all at once, the IRS allows payment plans. You can set up a short-term plan (120 days or less) with no setup fee, or a long-term installment agreement with a small fee. You can also request a delay in payment if you are facing financial hardship.
Contact the IRS directly or work with a tax professional to set up a plan. Do not ignore the bill — penalties and interest accrue quickly. If you owe state tax as well, contact your state tax authority about payment options.
Some people reduce their tax bill by requesting withholding on future unemployment if they are still receiving it. If you are back at work and no longer receiving unemployment, you cannot change what you owed for the past year, but you can plan better for the next year if unemployment happens again.
Frequently Asked Questions
Can I deduct unemployment benefits on my tax return?
No. Unemployment is taxable income, and there is no deduction that removes it. You report the full amount as income. The only exception was the $10,200 exclusion for 2020 benefits under the American Rescue Plan, which applied only to that year and only to people below a certain income threshold.
What if I received unemployment by mistake and had to pay it back?
If you repaid unemployment benefits in the same year you received them, you can deduct the repayment from your income on your tax return. You report the gross amount received on one line and the repayment as a deduction on another. If you repaid it in a different year than you received it, the rules are more complex — consult a tax professional or the IRS.
Do I have to file a tax return if my only income was unemployment?
It depends on the amount and your filing status. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married filing jointly. If your unemployment income is below that amount, you are not required to file, but you may want to if you had taxes withheld — you could get a refund.
Will unemployment affect my student loan payments or other benefits?
Unemployment income counts toward your total income for purposes of income-driven student loan repayment plans, which means your monthly payment could increase. It may also affect means-tested benefits like food information or housing support. Check with the specific program to understand how they count unemployment.
Can I request withholding after I have already received payments without it?
Yes. Contact your state unemployment office and request that withholding begin on future payments. They usually process the request within a few business days. Withholding will not explore retroactively to payments already made, but it will reduce what you owe when you file your return for the current year.