Yes, California unemployment benefits are taxable income, but you can choose whether to have taxes withheld

California treats unemployment benefits as taxable income at both the state and federal level. The state taxes your benefits as regular income. The federal government also taxes them. However, you have a choice: you can ask to have taxes withheld from your payments, or you can pay the tax bill when you file your return.

Most people do not realize this until they file their tax return and discover they owe money. The state does not automatically withhold taxes unless you request it. If you do not withhold and do not make quarterly estimated tax payments, you may owe a lump sum in April.

The amount you owe depends on your total income for the year, your filing status, and whether you have other income besides unemployment. A person living on unemployment alone may owe less than someone who worked part of the year and also collected benefits.

Key Takeaways

  • California and the federal government both tax your unemployment benefits as ordinary income, and the tax rate depends on your total yearly income.
  • You can request federal tax withholding when you file your claim or at any time while receiving benefits through the EDD website or by phone.
  • State tax withholding is automatic in California if you request federal withholding, but you can also request state withholding separately.
  • If you do not withhold taxes and your total income is high enough, you may owe a large tax bill when you file your return in April.
  • You can change your withholding choice at any time, and the EDD will adjust future payments to reflect your decision.

How federal tax withholding works on California unemployment

When you file your claim with the California Employment Development Department (EDD), you will see a question asking whether you want federal income tax withheld. If you say yes, the EDD will hold back 10 percent of each weekly benefit payment and send it to the Internal Revenue Service (IRS).

This 10 percent is not a tax rate—it is a flat withholding amount. Your actual federal tax liability may be higher or lower depending on your income, filing status, and deductions. The withholding is meant to cover part of what you will owe, not all of it.

You do not have to choose at the time you file. You can request federal withholding later by logging into your EDD account online, calling the EDD at 1-888-209-8124, or mailing a written request. The change takes effect on your next payment.

State tax withholding in California

California automatically withholds state income tax if you request federal withholding. The state withholds at the same 10 percent rate as the federal withholding. You cannot request federal withholding without also getting state withholding.

If you do not request federal withholding, the state does not withhold state taxes either. This means you will owe both federal and state taxes when you file your return unless you make quarterly estimated payments.

You can stop state withholding only by stopping federal withholding at the same time. There is no separate form to adjust state withholding alone.

What happens if you do not withhold taxes

If you receive $5,000 in unemployment benefits over the year and do not withhold taxes, you will owe federal and state income tax on that $5,000 when you file your return. The exact amount depends on your other income and your tax bracket.

For example, a single person with no other income and $5,000 in unemployment benefits will owe roughly $500 to $600 in combined federal and state taxes. A person who also worked and earned $30,000 in wages will owe more, because unemployment pushes them into a higher tax bracket.

If you cannot pay the full amount in April, you can set up a payment plan with the California Franchise Tax Board (for state taxes) or the IRS (for federal taxes). Both agencies allow monthly payments, though interest and penalties will accrue.

Changing your withholding choice during the year

You can request or cancel withholding at any time while you are receiving benefits. Log into your EDD account at edd.ca.gov, go to the "Manage Your Benefits" section, and look for the tax withholding option. You can also call the EDD at 1-888-209-8124 to make the change by phone.

If you request withholding after you have already received several weeks of benefits without it, the EDD will not go back and withhold from past payments. Withholding starts on the next payment after you make the request.

This means if you realize in December that you should have been withholding all year, you can start then, but you will still owe taxes on the benefits you received from January through November. Plan ahead if you can.

How to report unemployment on your tax return

The EDD sends you a Form 1099-G in January showing the total unemployment benefits you received in the previous year. You will receive one copy by mail and one electronically if you set up an online account. You must report this amount on your federal tax return, even if you had taxes withheld.

On your federal return, you report the full amount of benefits on line 19 of Form 1040 (or the equivalent line for your form). If you had federal withholding, that amount appears in Box 4 of your 1099-G. You report the withholding as a payment toward your tax bill.

On your California state return, you also report the full amount of benefits. If you had state withholding, it reduces what you owe. If you did not withhold and your total income is high enough, you will owe state tax on the benefits.

Unemployment benefits and other income

If you worked part of the year and also collected unemployment, your total income for tax purposes includes both wages and benefits. This can push you into a higher tax bracket and increase your tax bill.

For example, if you earned $25,000 in wages and received $8,000 in unemployment benefits, your taxable income is $33,000. You will owe tax on the full $33,000, not just the wages. The withholding from your job may not be enough to cover the tax on the combined income.

If you are in this situation, consider requesting federal and state withholding on your unemployment benefits. The 10 percent withholding may not be enough, but it is better than owing the full amount in April.

Frequently Asked Questions

Can I get a refund if too much tax was withheld from my unemployment?

Yes. If the EDD withheld more than you actually owe in taxes, you will receive a refund when you file your return. The refund comes from the IRS (federal) or the California Franchise Tax Board (state), not from the EDD. It typically arrives within a few weeks of filing.

What if I did not withhold and cannot pay my tax bill in April?

Contact the IRS or the California Franchise Tax Board to set up a payment plan. Both allow monthly payments. You will owe interest and penalties on the unpaid balance, but a payment plan prevents wage garnishment or bank levies. Call the IRS at 1-800-829-1040 or the Franchise Tax Board at 1-888-792-4900.

Do I have to report unemployment benefits if I only received a small amount?

Yes. You must report all unemployment benefits on your tax return, regardless of the amount. The EDD sends you a 1099-G for any benefits you received, and the IRS receives a copy. Failing to report it can result in penalties and interest.

If I request withholding now, will it explore to benefits I already received?

No. Withholding only applies to payments you receive after you make the request. If you received benefits in January through September without withholding and request it in October, you will still owe tax on the January through September benefits when you file your return.

Can I request a different withholding amount instead of 10 percent?

No. California offers only the standard 10 percent withholding. If that is not enough to cover your tax liability, you can make quarterly estimated tax payments to the IRS and California to avoid owing a large amount in April. Contact a tax professional or the IRS for guidance on estimated payments.