Unemployment benefits are taxable income, and you owe federal income tax on them
Yes, you must pay federal income tax on unemployment benefits. The IRS treats unemployment as taxable income in the same way it treats wages. You do not have to pay Social Security or Medicare taxes (FICA taxes) on unemployment, but federal income tax applies. Many states also tax unemployment benefits, though a handful do not.
The amount you owe depends on your total income for the year and your tax bracket. If unemployment is your only income, you may still owe tax. If you have other income from a job, a pension, or investments, your unemployment benefits push you into a higher tax bracket, which can increase the tax on all your income.
Key Takeaways
- Federal income tax is required on all unemployment benefits, and most states tax them too.
- You can have taxes withheld from your unemployment checks, or you can pay estimated taxes quarterly, or you can pay the full amount when you file your return.
- If you do not withhold taxes and owe more than $1,000 when you file, you may face a penalty for underpayment.
- Your state unemployment office can tell you whether your state taxes unemployment and how to set up withholding.
How to withhold taxes from your unemployment checks
The easiest way to handle unemployment tax is to have money withheld from each payment. This works the same way withholding works on a paycheck—the money comes out before you receive the benefit, and it goes to the IRS.
To set up withholding, contact your state unemployment office. Most states let you request withholding online, by phone, or on paper. You will choose a withholding rate: typically 10 percent is the standard option, though you can request a different amount. Once you set it up, the withholding happens automatically on every payment until you change it or your benefits end.
Withholding does not reduce the amount of tax you owe—it just spreads the payment across the year instead of making you pay it all at once when you file your return. If you withhold 10 percent and your tax liability is higher, you will still owe the difference in April. If you withhold more than you owe, you will receive a refund.
What happens if you do not withhold taxes
If you receive unemployment without withholding, you are responsible for paying the tax yourself. You have two options: pay estimated taxes quarterly, or pay the full amount when you file your annual return in April.
Estimated taxes are due on April 15, June 15, September 15, and January 15 of the following year. You calculate what you expect to owe for the year, divide it by four, and send that amount to the IRS on each due date. This requires you to predict your income and tax liability in advance, which is difficult if your unemployment amount changes or you return to work partway through the year.
Most people who do not withhold straightforward pay the full tax bill when they file their return. This works if you have the money saved, but if you owe more than $1,000 and did not pay estimated taxes, the IRS may charge you an underpayment penalty. The penalty is small—usually a few dollars—but it adds to what you already owe.
State unemployment taxes vary by location
Nine states do not tax unemployment benefits: Alabama, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, and North Carolina. If you live in one of these states, you only owe federal tax.
Every other state taxes unemployment as income. Some states withhold automatically unless you opt out. Others require you to request withholding, just like federal withholding. A few states do not offer withholding at all, which means you must pay the tax yourself when you file your state return.
Your state unemployment office website lists the withholding options available in your state. If your state does not offer withholding and you want to avoid a large bill in April, set aside a portion of each benefit payment in a separate account.
How much tax you will owe depends on your total income
The tax on unemployment is not a flat rate. It depends on your total income for the year and your filing status. If unemployment is your only income, you may owe little or no tax if the amount is below the standard deduction for your filing status. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly.
If you have other income—from a part-time job, a pension, investment income, or a spouse's wages—your unemployment benefits are added on top. This can push you into a higher tax bracket, which means you pay a higher percentage on all your income, not just the unemployment.
To estimate what you will owe, add up all your income for the year (wages, unemployment, interest, dividends, and any other sources), subtract the standard deduction, and explore the tax rate for your bracket. The IRS website has tax tables and a tax calculator. If you are unsure, a tax preparer can give you a rough estimate based on your situation.
Reporting unemployment on your tax return
When you file your federal return, you report unemployment benefits on line 19b of Form 1040. Your state unemployment office sends you a Form 1099-G in January or February showing the total benefits you received in the previous year. Use this form to fill in the amount on your return.
If you had taxes withheld, those withholdings appear on your Form 1099-G as well. When you file, the IRS compares what you withheld to what you actually owe. If you withheld too much, you receive a refund. If you withheld too little, you owe the difference.
Some people make a mistake by not reporting unemployment on their return because they think withholding means they do not have to file. Withholding is not the same as filing. You must report the income on your return even if taxes were withheld, or the IRS will send you a notice.
What to do if you cannot pay the tax you owe
If you file your return and owe tax but cannot pay it all at once, you have options. You can pay what you can now and request a payment plan with the IRS. The IRS offers short-term plans (up to 180 days) at no cost and long-term plans (longer than 180 days) with a small setup fee.
To set up a payment plan, go to IRS.gov, call the IRS at 1-800-829-1040, or work with a tax preparer. The IRS will calculate a monthly payment amount based on what you owe and how long you want to pay. Interest and penalties continue to accrue on the unpaid balance, but a payment plan stops the IRS from taking collection action.
If you are in financial hardship, you may also request an offer in compromise, which is a settlement for less than the full amount owed. This is rare and requires proof that you cannot pay, but it is worth asking about if your situation is severe.
Frequently Asked Questions
Do I have to pay taxes on unemployment if I only received benefits for a few weeks?
Yes. Any amount of unemployment is taxable income, even if it is a small amount or you received it for only a short time. However, if your total income for the year (including unemployment) is below the standard deduction for your filing status, you may not owe any tax. You still must file a return to report the income.
Can I claim unemployment benefits as a deduction to lower my taxes?
No. Unemployment benefits cannot be deducted. You report the full amount as income. However, if you had other deductible expenses—such as job search costs or professional fees—those may lower your taxable income separately.
What if I received unemployment in one year but returned to work partway through?
You report all income you received during the year on your return, including both unemployment and wages. Your total income determines your tax bracket. If you had taxes withheld from both unemployment and wages, those withholdings are credited against your total tax bill for the year.
Do I owe taxes on unemployment if I am retired?
Yes. Unemployment is taxable income regardless of your age or retirement status. If you are receiving Social Security, unemployment benefits do not affect your Social Security, but they do count as income for tax purposes and may affect how much of your Social Security is taxable.
What if my state does not tax unemployment but the federal government does?
You still owe federal income tax. State tax and federal tax are separate. Living in a state that does not tax unemployment saves you state tax only. You must still withhold or pay federal tax, or you will owe it when you file your federal return in April.