Unemployment benefits count as taxable income on your federal return

Unemployment benefits are fully taxable income at the federal level. The IRS treats them the same way it treats wages from a job. You must report the full amount you received, even if no one withheld taxes from your payments.

Most states also tax unemployment benefits as state income. A handful do not — currently Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax unemployment at the state level. If you live in one of these states, you still owe federal tax on your benefits.

The amount you owe depends on your total income for the year and your filing status. If unemployment was your only income, you may owe nothing. If you had other income — wages, self-employment, investment gains — your unemployment benefits can push you into a higher tax bracket and increase what you owe overall.

Key Takeaways

  • You must report all unemployment benefits as income on your federal tax return, regardless of whether taxes were withheld.
  • Most states tax unemployment benefits, but eleven states do not — check your state's rules if you live in one of them.
  • The tax you owe depends on your total income for the year, not just the unemployment amount.
  • You can request tax withholding from your unemployment payments, which reduces what you owe at tax time but lowers your weekly check.

How to report unemployment on your tax return

When you file your federal return, you will report unemployment benefits on Form 1040, line 19b (or the equivalent line if you use tax software). The IRS sends you a Form 1099-G by January 31 each year showing the total benefits you received. Use that form to fill in your return.

If you received benefits in more than one state during the year, you will get a separate 1099-G from each state. Add all of them together and report the total on your return. Do not report them separately by state.

If you did not receive a 1099-G by early February, contact the unemployment office in the state where you filed. You can also check your account online — most state systems let you view and read your 1099-G through your portal. If the form shows an incorrect amount, contact the unemployment office to request a corrected form before you file your return.

Withholding taxes from your unemployment payments

You can ask your state unemployment office to withhold federal income tax from your weekly or biweekly payments. This works like tax withholding from a paycheck — the state takes a percentage (usually 10 percent) and sends it to the IRS on your behalf. Your weekly benefit check is smaller, but you owe less at tax time.

To set up withholding, log into your state unemployment account or call the office. The process varies by state — some let you change withholding online, others require a phone call or a form. You can start withholding at any time and stop at any time, so if you find yourself in a tight spot, you can turn it off temporarily.

Withholding is optional. Many people choose it to avoid a large tax bill in April. Others prefer to keep the full payment now and deal with taxes later. There is no penalty either way — it is purely a matter of cash flow and what works for your situation.

What happens if you do not withhold taxes

If you do not withhold taxes from your unemployment payments, you will owe the full amount when you file your return in April (or whenever you file). The amount depends on your tax bracket and your total income for the year.

For example, if unemployment was your only income and you received $15,000 in benefits, you would owe federal income tax on that $15,000. The exact amount depends on your filing status and whether you have dependents, but you might owe $1,500 to $2,500 in federal tax alone. Add state tax if your state taxes unemployment, and the bill grows.

If you cannot pay the full amount when you file, you can set up a payment plan with the IRS. You will owe interest and penalties on the unpaid balance, so it is better to withhold during the year or set aside money as you receive benefits.

Unemployment and the standard deduction

You do not pay income tax on income below the standard deduction for your filing status. In 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. These amounts change each year.

If your unemployment benefits plus any other income falls below your standard deduction, you may not owe any federal income tax. However, you still must file a return to claim any refundable tax credits you are may have access to to — such as the Earned Income Tax Credit (EITC) — even if you owe no tax.

State rules vary. Some states have their own standard deduction; others tax all unemployment income regardless of the amount. Check your state's rules or ask the unemployment office whether you need to file a state return.

Self-employment tax and unemployment benefits

Unemployment benefits do not count toward self-employment tax. If you are self-employed and receiving unemployment, you only pay self-employment tax on your net self-employment income, not on the unemployment.

However, your unemployment income still counts as income for purposes of calculating your overall tax liability and determining your tax bracket. This means unemployment can push your self-employment income into a higher bracket, increasing the income tax you owe even though it does not increase your self-employment tax.

Frequently Asked Questions

Do I have to file a tax return if I only received unemployment benefits?

You must file if your unemployment benefits plus other income exceeds your standard deduction, or if you are may have access to to a refundable tax credit like the EITC. Even if you owe no tax, filing may get you a refund. Check your state's rules — some require a return even below the standard deduction threshold.

What if I received unemployment in one state but moved to another?

Report all unemployment benefits on your federal return, regardless of which state paid them. For state taxes, follow the rules of the state where you lived when you received the benefits. If you moved mid-year, you may need to file returns in both states.

Can I deduct unemployment benefits or claim them as a loss?

No. Unemployment benefits are taxable income, not a deductible expense or loss. You cannot reduce your taxable income by claiming unemployment as a business loss or casualty loss.

What if the 1099-G shows the wrong amount?

Contact your state unemployment office when ready and request a corrected form. Do not file your return with an incorrect amount — the IRS will match your return against the 1099-G, and a mismatch can trigger an audit or delay your refund.

Does withholding 10 percent cover all my taxes?

Not always. Ten percent withholding is a rough estimate and may not cover your full tax liability if you have other income or dependents. Use a tax calculator or speak with a tax professional to estimate what you actually owe, then adjust your withholding if needed.