How Unemployment Benefits Affect Your Taxes

Unemployment income is taxable, and you may owe taxes even if no money was withheld

Unemployment benefits count as income to the IRS. That means you may owe federal income tax on what you received, whether or not your state unemployment office took taxes out of your payments. Many people discover this at tax time and face an unexpected bill — or they miss the chance to claim a refund they're owed.

The amount you owe depends on your total income for the year, your filing status, and whether you had other income besides unemployment. Some people owe nothing. Others owe several hundred dollars. The only way to know is to file a tax return or work through the numbers with a tax professional.

You don't have to wait until April to handle this. You can adjust your withholding now, claim a refund when you file, or set money aside as you receive benefits so you're not caught off guard.

Key Takeaways

• The IRS treats unemployment benefits as taxable income, separate from whether your state withheld taxes from your payments.
• You can choose to have federal taxes withheld from your unemployment checks, or you can pay when you file your tax return.
• If you had little or no other income, you may owe no tax at all, even on unemployment benefits.
• Form 1099-G, sent by your state unemployment office, reports the total benefits you received and any taxes already withheld.
• The IRS offers a tax withholding estimator online to help you figure out whether you'll owe money or get a refund.

Whether your state withheld taxes from your unemployment checks

When you first file for unemployment, most states ask whether you want federal income tax withheld from your weekly or biweekly payments. If you said yes, your state unemployment office deducts a flat percentage — usually 10 percent — and sends it to the IRS on your behalf. If you said no, or didn't choose, no withholding happens and you receive the full amount.

Withholding is optional. Choosing it means less money in your pocket each week but no surprise tax bill later. Not choosing it means you keep more now but may owe when you file. Neither choice is wrong — it depends on whether you have other income, how much you need the money right now, and whether you prefer to handle taxes gradually or all at once.

You can change your withholding choice mid-year in most states. If you didn't withhold and now realize you'll owe money, you can contact your state unemployment office and ask to start withholding on future payments. If you withheld and don't think you'll owe anything, you can stop.

How to figure out if you'll owe taxes on unemployment

The simplest way is to use the IRS Tax Withholding Estimator, available free on irs.gov. You enter your expected income for the year — including unemployment benefits, wages from any job, interest, dividends, and other sources — and it tells you whether you're likely to owe, break even, or get a refund. It also shows you how much to withhold going forward if you want to adjust.

If you don't want to use the online tool, you can do rough math yourself. Standard deductions for 2024 are $14,600 for single filers and $29,200 for married filing jointly. If your total income (unemployment plus everything else) is below that number, you likely owe no federal income tax. If it's above, you probably owe something, but the exact amount depends on your filing status and other details.

This math is approximate. A tax professional or free tax preparation service can give you a precise answer. Many nonprofits offer free tax help to people with low to moderate income — search "VITA" (Volunteer Income Tax Assistance) plus your city name to find a location near you.

What Form 1099-G tells you and when it arrives

Form 1099-G is the document your state unemployment office sends you showing how much in benefits you received and how much tax (if any) was withheld. You receive it by mail or email, usually by the end of January, and you need it to file your tax return.

The form has several boxes. Box 1 shows your total unemployment benefits for the year. Box 2 shows federal income tax withheld, if you chose withholding. Boxes 3 and 4 show state and local taxes withheld, if your state collects them. You'll use Box 1 when you file your federal return.

If you don't receive your 1099-G by early February, contact your state unemployment office. You can usually request a copy online or by phone. Don't file your tax return without it — the IRS will receive a copy too, and mismatches cause delays and notices.

State taxes on unemployment benefits

Most states do not tax unemployment benefits at all. A handful do: Illinois, Indiana, Mississippi, Missouri, New Jersey, and Vermont tax unemployment income. If you live in one of these states, your state unemployment office may have withheld state tax from your payments, or you may owe state tax when you file your state return.

Some states that tax unemployment offer a partial exemption or deduction. New Jersey, for example, taxes unemployment but allows you to exclude a portion of benefits from taxable income. Check your state's tax website or call your state tax office to understand the rules where you live.

If you received unemployment in one state but moved to another, or worked in a different state than where you live, state tax gets more complicated. A tax professional can sort out which state owes what, but the basic rule is that you owe tax to the state where you earned the income, not necessarily where you live now.

Claiming a refund if too much tax was withheld

If your state withheld 10 percent from your unemployment but your total income for the year was low enough that you owe no federal tax, you'll get that withheld amount back as a refund when you file. The same is true if you withheld more than you actually owe.

You claim the refund by filing your tax return — either on paper or electronically through tax software or a tax professional. You don't have to do anything special; the IRS calculates what you owe, compares it to what was withheld, and sends you the difference. Refunds typically arrive within a few weeks of filing if you file electronically, or several weeks if you file on paper.

If you're waiting for a refund and need money now, you can file your return early. The sooner you file, the sooner the IRS processes it and sends your refund.

Setting aside money if you didn't withhold

If you chose not to withhold taxes and you think you'll owe money, one strategy is to set aside a portion of your unemployment benefits each week so you have the money when tax time comes. This isn't required, but it prevents the shock of a large bill in April.

A rough guideline: if your total income for the year will be above the standard deduction, set aside 10 to 12 percent of your unemployment benefits. This is what withholding would take anyway. Put it in a separate savings account so you don't spend it by accident.

This is just a guideline, not a may provide of what you'll owe. Your actual tax depends on your full income picture. But setting money aside gives you a cushion and makes filing less stressful.

Frequently Asked Questions

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

It depends on how much you received. If your unemployment benefits alone were below the standard deduction for your filing status ($14,600 for single filers in 2024), you don't have to file federally. However, you may still want to file to claim a refund of withheld taxes. Check your state's rules too — some states have lower thresholds.

Can I change my withholding choice after I've already received benefits?

Yes. Contact your state unemployment office and ask to start or stop withholding on future payments. The change usually takes effect within one or two payment cycles. Changing withholding doesn't affect taxes on benefits you've already received — you'll handle those when you file your return.

What if I received unemployment in multiple states?

You'll receive a 1099-G from each state showing benefits paid by that state. When you file your federal return, you report the total from all forms. State taxes are trickier — you may owe tax to multiple states depending on where you worked and where you live. A tax professional can help sort this out.

If I'm married and filing jointly, do we both report our unemployment?

Yes. Each spouse reports their own unemployment benefits on the joint return. Your combined income determines your tax bracket and whether you owe. If one spouse had unemployment and the other had wages, both amounts count toward your total household income.

Where do I report unemployment benefits on my tax return?

On the federal return, unemployment benefits go on Form 1040, line 19. Tax software will prompt you to enter the amount from Box 1 of your 1099-G. If you're filing on paper, the instructions with Form 1040 show exactly where to write it. Your state return has a similar line for state unemployment benefits if your state taxes them.