You must report unemployment benefits as income on your federal tax return, even though no federal income tax was withheld

Unemployment benefits count as taxable income to the IRS. This means you report the full amount you received on your tax return, whether or not you had taxes taken out when you got the money. The state that paid your benefits sends you a form called a 1099-G in January or early February, and you use that form to report the income.

Many people do not realize they owe taxes on unemployment until they file and see a bill. This happens because unemployment payments often arrive without federal withholding — the money comes to you in full, but the IRS still expects you to pay tax on it. If you did request withholding when you filed for benefits, some tax was already taken out, but you still report the full amount on your return.

Key Takeaways

  • The state sends you a 1099-G form showing total unemployment received; you report this amount on your federal tax return as income.
  • Federal income tax is usually not withheld from unemployment payments, so you may owe taxes when you file unless you requested withholding.
  • You can request federal withholding on future unemployment payments through your state's unemployment office to reduce what you owe at tax time.
  • If you received unemployment in multiple states, you will receive a separate 1099-G from each state and must report all of them.
  • Unemployment income may push you into a higher tax bracket or reduce tax credits you would otherwise receive, such as the Earned Income Tax Credit.

Where the 1099-G form comes from and what it shows

Your state unemployment office mails or emails the 1099-G to you by January 31 each year. The form shows the total amount of unemployment benefits you received in the previous calendar year in Box 1a. If you requested federal withholding when you applied for benefits, Box 4 shows how much was already withheld.

You receive one 1099-G per state. If you collected unemployment from two states in the same year, you will get two separate forms and must report both amounts. The form also includes your state's tax identification number and the state's address, so you can verify it is correct before you file.

Keep your 1099-G with your tax records. You do not mail it with your return, but the IRS receives a copy from the state, so your return must match the amount shown on the form.

How to report unemployment on your federal tax return

On the IRS Form 1040 (the main federal income tax form), unemployment income goes on Line 8 under "Wages, salaries, tips." Report the full amount from Box 1a of your 1099-G, even if federal tax was withheld. This amount is added to any wages you earned from a job, and the total becomes your gross income for the year.

If you used tax software to file, the software walks you through entering the 1099-G information. If you file by hand or with a tax preparer, give them the 1099-G and they will enter it in the correct place. The software or preparer will automatically calculate whether you owe additional tax or receive a refund based on the total income you report.

If you received unemployment from multiple states, add all the amounts together and report the total on Line 8. You do not need to list each state separately on the main form, but keep all 1099-G forms for your records in case the IRS asks questions.

What happens if you had federal withholding taken out

When you filed for unemployment, you may have been offered the option to have federal income tax withheld from your payments. If you chose that option, the state withheld a percentage (usually 10 percent) and sent it to the IRS on your behalf. Box 4 on your 1099-G shows the amount withheld.

You still report the full unemployment amount on Line 8 of your tax return. The withholding you already paid is then entered as a credit on your return, which reduces what you owe. If the withholding was more than your actual tax liability, you receive a refund of the difference. If it was less, you owe the difference when you file.

Withholding does not eliminate your tax bill — it just spreads the payment across the year instead of requiring you to pay it all at once when you file. Many people choose withholding for this reason, even though the amount withheld is often not enough to cover the full tax owed.

How unemployment income affects your tax bracket and credits

Adding unemployment to your income can push you into a higher tax bracket, meaning a larger percentage of your total income is taxed. For example, if you earned $20,000 from a job and received $10,000 in unemployment, your taxable income is $30,000, not $20,000. This may result in owing more tax than you would have owed on the job income alone.

Unemployment income can also reduce or eliminate tax credits you might otherwise receive. The Earned Income Tax Credit (EITC) and the Child Tax Credit both have income limits, and adding unemployment to your income may push you over those limits. This is one of the most common surprises people face when they file — they expected a refund but owe money instead because unemployment income reduced their credits.

If you are concerned about this, you can request federal withholding on future unemployment payments. Contact your state's unemployment office and ask to increase the withholding percentage. This will reduce the amount you receive each week but lower what you owe when you file.

Requesting federal withholding on unemployment payments

You can request federal withholding when you first file for unemployment, or you can request it later while you are still receiving benefits. The process varies by state, but most states allow you to change your withholding through their online portal or by calling the unemployment office.

When you request withholding, you choose a percentage — typically 10 percent is the standard option, but some states allow you to request a different amount. The state then withholds that percentage from each payment and sends it to the IRS. This reduces the amount you receive each week but also reduces what you owe at tax time.

If you did not request withholding and now realize you will owe taxes, you cannot change past payments. However, you can request withholding on any remaining benefits if you are still collecting. You can also make estimated tax payments to the IRS directly if you want to pay taxes as you go, though this is less common for unemployment income.

State income tax on unemployment benefits

Most states also tax unemployment benefits as income, though a few states do not. Your state unemployment office can tell you whether your state taxes unemployment. If it does, you will receive a separate state form (usually called a 1099-G or similar) showing the amount you received, and you report it on your state tax return the same way you report it on your federal return.

Some states allow you to request state income tax withholding in addition to federal withholding. If you live in a state that taxes unemployment and you did not request withholding, you may owe state taxes in addition to federal taxes when you file. Check your state's tax website or contact your state unemployment office to find out the withholding options available to you.

Frequently Asked Questions

Do I have to file a tax return if I only received unemployment and no other income?

It depends on the amount. For 2023, you must file a federal return if your gross income (including unemployment) is at least $13,850 if you are single, or $27,700 if you are married filing jointly. However, even if you are below that threshold, filing may be worth it — if federal tax was withheld from your unemployment, you may receive a refund by filing.

What if I did not receive a 1099-G by the end of February?

Contact your state unemployment office and ask them to send it or provide the information. You can also check your online unemployment account — many states post the 1099-G information there before mailing the physical form. If you file before receiving the form, you can file an amended return once you have the correct amount.

Can I deduct expenses from my unemployment income?

No. Unemployment benefits are reported as income in full, and you cannot deduct job search expenses, training costs, or other expenses against them. However, if you had other income from self-employment or a job, you may be able to deduct business expenses from that income.

What if I received unemployment in two different states during the same year?

You will receive a 1099-G from each state. Add the amounts from both forms and report the total on Line 8 of your federal return. Each state may also send you a state tax form if that state taxes unemployment. Report each state's amount on the corresponding state tax return.

Will unemployment income affect my student loan payments or other benefits?

Unemployment income counts as income for purposes of income-driven student loan repayment plans, which may increase your monthly payment. It may also affect may be able to access for other means-tested benefits such as SNAP or housing assistance. Contact the program administrator for each benefit you receive to find out how unemployment income is counted.