Unemployment benefits are taxable income, and the amount of tax depends on your total income for the year and whether you chose to have taxes withheld when you claimed benefits
The federal government taxes unemployment benefits as ordinary income. This means the money you receive counts toward your annual taxable income, just like wages from a job would. The actual tax you owe depends on two things: how much unemployment you received, and what your other income was that year.
You have a choice when you first claim unemployment: you can ask the state to withhold federal income tax from each payment, or you can skip withholding and pay the tax when you file your return. Many people skip withholding because the unemployment payment is already reduced, and they prefer to handle the tax bill later. That choice affects whether you owe money at tax time or not.
Key Takeaways
- Unemployment benefits are taxed as federal income, and the amount of tax owed depends on your total yearly income and tax bracket, not a flat rate on the benefits themselves.
- You can choose to have federal income tax withheld from your unemployment checks, or you can skip withholding and pay the tax bill when you file your return.
- If you did not have taxes withheld and your unemployment pushed you into a higher tax bracket, you may owe money at tax time.
- Some states also tax unemployment benefits, but most do not; your state's rules are separate from the federal tax.
Federal tax withholding: the choice you make when you claim
When you file for unemployment with your state, you will be asked whether you want federal income tax withheld from your payments. The withholding rate is 10 percent of each check. If you choose withholding, the state deducts that amount before sending you the money.
Choosing withholding does not mean you will owe nothing at tax time. It means the state is making a down payment on your tax bill. Whether you owe more, get a refund, or break even depends on your actual tax liability for the year—which depends on all your income, not just the unemployment.
If you do not choose withholding when you claim, the state sends you the full amount and you are responsible for setting aside money for taxes. Many people do this and then face a surprise bill in April. The IRS expects you to pay estimated taxes throughout the year if you know you will owe, though in practice most people wait until they file.
How your tax bracket determines what you actually owe
Unemployment benefits are added to any other income you had that year—wages, self-employment income, Social Security, interest, or anything else taxable. Your total income determines which tax bracket you fall into, and that bracket determines your rate.
For example, if you earned $30,000 in wages and received $10,000 in unemployment, your taxable income is $40,000. The tax on that $40,000 depends on your filing status (single, married filing jointly, head of household, and so on). A single filer in 2024 pays 12 percent on income between roughly $11,600 and $47,150, so part of that $40,000 would be taxed at 12 percent.
The unemployment itself is not taxed at a special rate. It is simply added to your other income and taxed according to the brackets that apply to your total. If the unemployment pushed you into a higher bracket than you would have been in otherwise, you pay the higher rate on the income that falls in that bracket.
State unemployment taxes: most states do not impose them
Most states do not tax unemployment benefits. However, a small number do. As of now, only a handful of states—including New Jersey, Pennsylvania, Illinois, Indiana, Mississippi, Missouri, Kansas, Ohio, Virginia, West Virginia, and the District of Columbia—tax unemployment at the state level.
If you live in one of these states, you may owe state income tax on your unemployment in addition to federal tax. The state will usually ask you about withholding when you claim, just as the federal government does. Check your state's unemployment office website or call to find out whether your state taxes benefits and what your withholding options are.
If you live in a state that does not tax unemployment, you still owe federal tax, but you will not owe state tax on the benefits themselves.
What happens if you did not have taxes withheld
If you chose not to have federal tax withheld from your unemployment checks, you will report the full amount on your tax return. The IRS will calculate what you owe based on your total income for the year. If you did not have enough tax withheld from other sources (like a job), you will owe money when you file.
The amount you owe is not a penalty or a surprise charge. It is simply the difference between the tax you should have paid and the tax that was already taken out of your paychecks or other income. If you had a job for part of the year and your employer withheld taxes, that withholding counts toward your total bill.
If you owe money, you can pay it in full when you file, or you can set up a payment plan with the IRS. The IRS charges interest on unpaid taxes, so paying as soon as you can is usually the better choice.
How to report unemployment on your tax return
When you file your federal return, you will report your unemployment benefits on Form 1040, line 19b (for 2024; line numbers change year to year). You will receive a Form 1099-G from your state's unemployment office showing how much you received and how much federal tax was withheld, if any. Use that form to fill in your return.
If you had federal tax withheld, that amount will also appear on the 1099-G. When you file, the IRS will see both the gross amount and the withholding, and will calculate whether you owe more or are due a refund.
If you received unemployment from more than one state, you will receive a 1099-G from each state. Add all the amounts together when you report your total unemployment income.
Frequently Asked Questions
Do I have to pay taxes on unemployment if I did not work that year?
Yes. Unemployment benefits are taxable income regardless of whether you had other income. If unemployment was your only income and it exceeded the standard deduction for your filing status, you owe federal tax. The standard deduction varies by age and filing status but is usually between $13,000 and $14,000 for a single person under 65.
What if I owe taxes but cannot pay right now?
You can file your return on time and set up a payment plan with the IRS. The IRS offers several options, including short-term plans (up to 180 days) and longer installment agreements. You will owe interest and possibly a late-payment penalty, but filing on time reduces the penalty. Contact the IRS or use their website to explore payment options.
Can I change my withholding choice after I have already claimed unemployment?
Rules vary by state. Some states allow you to request withholding after you have already started receiving benefits; others do not. Contact your state's unemployment office to ask whether you can change your withholding election mid-claim. If you cannot, you will handle the tax when you file your return.
If I had taxes withheld, will I definitely not owe anything?
Not necessarily. The 10 percent withholding is an estimate. If your total income for the year is high enough, you may still owe additional tax even after withholding. Conversely, if your income is low, you may get a refund. The actual amount owed depends on your complete tax picture, not just the withholding.
Do I report unemployment on my state return too?
Only if your state taxes unemployment benefits. If you live in one of the states that does tax unemployment, you will report it on your state return as well as your federal return. If your state does not tax unemployment, you report it only on your federal return. Check your state's tax office website to confirm.