TurboTax FAQ
TurboTax FAQ
95 people found this useful

Are Unemployment Benefits Taxable?

How unemployment is taxed

Unemployment benefits do count as taxable income on your federal return, but your state may or may not tax unemployment income. TurboTax will do the calculations for you when you prepare your state return.

If you are surprised, you're not alone. Many people find this out only when they file their tax return.

One small consolation: If your income is low to moderate, you might not be required to file a federal return or pay any federal taxes. To learn more, read Do I Need to File a Tax Return?

How to report unemployment on your federal tax return

At the end of the year that you’ve received unemployment benefits, you’ll get a Form 1099-G (and so will the IRS) reporting what you’ve been paid.

To enter unemployment payments you received on a 1099-G, in the TurboTax search box, enter 1099-g and press the Enter key.

On the Unemployment (and Paid Family Leave) screen, check the Yes button, click Continue, and enter the information on your form.

Reporting contributions to a private unemployment fund

If you received income from a private unemployment fund (to which you voluntarily contributed) your unemployment income up to the amount you contributed won't be taxed. Above the amount you contributed, the income is considered taxable, and must be reported on your tax return as "other income."

Consider having some unemployment income withheld

If you're worried about being stuck with a big tax bill on your employment income when you file your taxes, the IRS offers a way to avoid that.

Fill out Form W-4V,Voluntary Withholding Request to have 10 percent of your benefits withheld for federal income taxes. You can do this by typing your information directly on the form online. But then you need to make a copy, sign it, and send it to your state unemployment office.

Depending on your circumstances, you might even be required to make quarterly estimated income tax payments, because you’re no longer having taxes withheld by your employer.

Estimated taxes are what the IRS expects people to pay when their income is not subject to withholding, such as investment or self-employment income. And unemployment income. It's typically paid four times a year.