You can choose to have federal income tax withheld from your unemployment benefits, but you are not required to

When you receive unemployment benefits, the federal government does not automatically take out income tax. Instead, you decide whether to have withholding happen. If you choose withholding, the state will remove a flat 10 percent of each weekly payment and send it to the IRS. If you do not choose withholding, you keep the full amount but may owe taxes when you file your return.

This choice matters because unemployment benefits count as taxable income. Whether you withhold now or pay later depends on your total income for the year, whether you have other jobs, and whether you prefer smaller checks now or a larger tax bill in April.

Key Takeaways

  • Federal withholding on unemployment is optional and set at a flat 10 percent if you choose it.
  • You decide about withholding when you first file for benefits or can change your choice later through your state's unemployment office.
  • Withholding reduces your weekly check but may prevent owing a large amount when you file your tax return.
  • If you have no other income and your unemployment is below a certain threshold, you may owe no federal tax regardless of withholding.

How the 10 percent withholding works

If you request withholding, your state unemployment office deducts 10 percent from each weekly benefit payment. That amount goes directly to the IRS as a federal income tax payment. The remaining 90 percent is deposited into your account or mailed as a check.

The 10 percent is a flat rate set by federal law and does not change based on your income, filing status, or other circumstances. It is not calculated the way an employer calculates withholding from a paycheck. It is simply one-tenth of whatever you receive that week.

This withholding covers only federal income tax. It does not cover self-employment tax, state income tax, or local taxes. Some states also tax unemployment benefits and may have their own withholding options.

When you might want withholding

Withholding makes sense if you expect to owe federal income tax on your total year's income. If you have a spouse who works, a second job, retirement account withdrawals, or other income sources, your household income may push you into a tax bracket where you owe money. Withholding spreads that payment across the year instead of requiring a lump sum in April.

Withholding also helps if you tend to underpay taxes or have owed money in previous years. The 10 percent is not always enough to cover your full tax liability, but it reduces the gap between what you owe and what you have already paid.

If you are unsure whether you will owe tax, the IRS worksheet on Form 1040 or a tax software preview can show you an estimate based on your expected income for the year.

When you might skip withholding

You do not need withholding if your total income for the year will be below the threshold where you must file a tax return. For 2024, a single person under 65 with only unemployment income does not have to file if their income is below $14,600. If you are married filing jointly and both spouses have only unemployment income, the threshold is higher.

You also might skip withholding if you prefer to keep the full weekly amount and have the cash flow to pay taxes later. Some people use the extra money to cover expenses now and set aside funds for taxes themselves.

Keep in mind that skipping withholding does not erase the tax you owe. It only delays payment until you file your return. If you owe a large amount and cannot pay it, the IRS can apply penalties and interest.

How to request or change withholding

Most states let you choose withholding when you first file for unemployment benefits. The application or online portal will ask whether you want federal income tax withheld. You select yes or no at that time.

If you change your mind later, you can usually update your choice through your state's unemployment website or by calling your local unemployment office. The change typically takes effect on your next payment. Some states allow you to change withholding once per benefit year; others allow changes at any time.

Contact your state's unemployment insurance office directly to confirm how to make changes. The process varies by state, and your office can tell you whether the change will apply to future payments or retroactively.

Withholding does not cover your full tax bill

The 10 percent withholding is a starting point, not a complete tax payment. Depending on your income and filing status, you may still owe money when you file your return, or you may receive a refund.

If you have other income—from a job, self-employment, rental property, or investments—your total tax liability may be much higher than 10 percent of your unemployment benefits. Withholding helps, but you will need to account for all income sources when you file.

If you have no other income and your unemployment is low, 10 percent withholding may be more than you actually owe. In that case, you would receive a refund when you file your return.

State taxes on unemployment benefits

Some states tax unemployment benefits as income; others do not. If your state taxes unemployment, you may have the option to request state withholding as well as federal withholding. A few states withhold automatically.

Check your state's unemployment office website or call to learn whether your state taxes benefits and what withholding options are available. State withholding rates vary and are separate from the federal 10 percent.

Frequently Asked Questions

If I have withholding taken out, will I definitely not owe taxes?

No. The 10 percent withholding is not calculated based on your actual tax liability. Depending on your total income, filing status, and deductions, you may still owe money or receive a refund. Withholding is a payment toward your taxes, not a may provide of zero balance.

Can I change my withholding choice after I start receiving benefits?

Yes. Most states allow you to update your withholding choice through your unemployment account online or by contacting your local office. The change usually takes effect on your next payment, though some states process changes differently. Contact your state's unemployment office to confirm the process.

What happens if I do not request withholding and owe taxes?

You will owe the full amount when you file your return in April. If you cannot pay in full, you can set up a payment plan with the IRS or request an extension. Unpaid taxes accrue interest and penalties, so paying as soon as possible reduces the total amount owed.

Does the 10 percent withholding cover state income tax too?

No. The 10 percent is federal only. If your state taxes unemployment benefits, you must request state withholding separately. Some states withhold automatically; others let you choose. Check your state's unemployment office for details on state withholding options.

If I am married, does my spouse's income affect whether I should request withholding?

Yes. If you file jointly, your household income includes both your unemployment and your spouse's earnings. Combined income may push you into a higher tax bracket, meaning you owe more tax overall. Consider your spouse's income when deciding whether 10 percent withholding will be enough.