Unemployment benefits are taxable income

Yes, you owe federal income tax on unemployment benefits. The IRS treats them as taxable income, the same way it treats wages from a job. You do not have to pay Social Security or Medicare tax (the 6.2% and 1.45% that come out of paychecks), but you do owe federal income tax, and in most states, state income tax as well.

The amount you owe depends on your total income for the year, your filing status, and whether you have other income besides unemployment. If unemployment is your only income and the total is below the standard deduction for your filing status, you may owe nothing. If your total income is higher, you will owe tax on the amount above the threshold.

Many people do not realize this until tax time, because unemployment checks do not have tax withheld automatically — unless you asked for it when you filed your claim. The result is a surprise tax bill in April.

Key Takeaways

  • Federal income tax is owed on all unemployment benefits, though you do not owe Social Security or Medicare tax.
  • Most states also tax unemployment benefits, with a few exceptions including New York, Pennsylvania, and Illinois.
  • Tax is not withheld from unemployment checks unless you request it when you file your claim or when you certify for benefits.
  • You can request withholding at any time, or set aside money yourself to pay the tax bill when you file.
  • If you owe tax and cannot pay it in full, the IRS allows payment plans with no penalty if you file your return on time.

Which states do not tax unemployment

Most states tax unemployment benefits, but a few do not. New York, Pennsylvania, and Illinois do not tax unemployment income. If you live in one of these states, you owe only federal income tax.

Every other state taxes unemployment as income. The rate varies by state — some states have a flat tax rate, others use a graduated system based on how much you earn. Your state tax bill is separate from your federal bill.

How to avoid a surprise tax bill

The simplest way to avoid owing a large amount in April is to have tax withheld from your unemployment checks while you receive them. When you file your initial claim or certify for weekly or biweekly benefits, you should see an option to request federal income tax withholding. The standard withholding is 10% of your benefit amount.

If you did not request withholding when you filed, you can usually request it later through your state's unemployment office website or by calling. The process varies by state — some let you change it online, others require a phone call or form.

If you prefer not to have tax withheld, you can set aside money yourself each week and save it for tax time. This requires discipline, but it gives you control over how much is held back. Many people find it easier to have the withholding done automatically.

What happens if you do not withhold tax

If you receive unemployment benefits and do not have tax withheld, you will owe the tax when you file your return. The amount depends on your total income for the year. If unemployment is your only income and it is below the standard deduction, you may owe nothing. If your total income is higher, you will owe tax on the amount above the threshold.

For 2024, the standard deduction is $14,600 for a single filer and $29,200 for married filing jointly. If your unemployment benefits plus any other income exceed these amounts, you will owe federal income tax. You may also owe state income tax, depending on where you live.

If you owe tax and cannot pay it in full when you file, you can set up a payment plan with the IRS. There is no penalty for paying late if you file your return on time and set up the plan before the important date.

How to calculate what you might owe

To get a rough idea of your tax bill, add up all your income for the year — unemployment benefits, wages from any job, interest, dividends, and any other taxable income. Subtract the standard deduction for your filing status. The result is your taxable income, and you owe tax on that amount.

The federal tax rate depends on your filing status and how much taxable income you have. For 2024, a single filer with $20,000 in taxable income owes roughly $2,300 in federal tax. A married couple filing jointly with $40,000 in taxable income owes roughly $4,500. These are rough estimates — your actual bill may be higher or lower depending on credits you can claim.

Your state tax bill is separate and depends on your state's tax rate and rules. If you live in a state with a 5% flat tax and have $20,000 in taxable income, you would owe $1,000 in state tax. States with graduated tax systems charge different rates at different income levels.

Tax credits that may reduce what you owe

If your income is low, you may be able to claim the Earned Income Tax Credit (EITC), which reduces your tax bill or gives you a refund. The EITC is available to people with low to moderate income, and the amount depends on your income, filing status, and whether you have dependents. You do not have to have earned income from a job to claim it — unemployment counts as income for EITC purposes.

You may also be able to claim the Child Tax Credit if you have dependent children, or the Credit for Other Dependents if you support a parent or other relative. These credits reduce your tax bill dollar for dollar.

To claim these credits, you must file a tax return even if you do not owe tax. Many people with low income do not file because they think they do not have to, but filing lets you claim credits that may give you a refund.

Reporting unemployment on your tax return

When you file your tax return, you will report your unemployment benefits on Form 1040, line 19b. Your state unemployment office will send you a Form 1099-G by January 31 showing how much you received in the previous year. Use this form to fill in the amount on your return.

If you had federal tax withheld from your benefits, that amount will also be shown on the Form 1099-G. When you file your return, the IRS will credit that withholding against your total tax bill. If you withheld more than you owe, you get a refund. If you withheld less, you owe the difference.

You must report all unemployment benefits you received, even if the amount is small. The IRS matches your return against the Form 1099-G your state sends, so leaving it off will trigger a notice.

Frequently Asked Questions

Do I have to file a tax return if unemployment is my only income?

Only if your unemployment benefits exceed the standard deduction for your filing status. For 2024, that is $14,600 for a single filer. However, you should file even if you do not owe tax, because you may be able to claim the Earned Income Tax Credit or other credits that give you a refund.

Can I request tax withholding after I have already received benefits?

Yes. Contact your state unemployment office and ask to start withholding on future payments. The process varies by state — some let you do it online, others require a phone call. Withholding will not explore to benefits you have already received, but it will prevent a larger bill when you file.

What if I move to a different state while receiving unemployment?

You owe tax to the state where you worked and earned the unemployment benefits, not the state where you currently live. If you move to a state that does not tax unemployment, you still owe tax to your former state. Report the income on both your federal return and your former state's return.

Do I owe self-employment tax on unemployment benefits?

No. Self-employment tax (Social Security and Medicare) applies only to income from self-employment or certain other sources. Unemployment benefits are not subject to self-employment tax, only federal and state income tax.

What if I cannot pay my tax bill when I file?

You can set up a payment plan with the IRS. File your return on time and pay as much as you can, then contact the IRS to arrange a plan for the rest. There is no penalty for paying late if you file on time and set up the plan before the important date.