TurboTax FAQ
TurboTax FAQ
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I received unemployment benefits last year – Why is my refund decreased this year?

Unemployment income can have a negative effect on your taxes for two reasons.
 
Unfortunately, unemployment benefits are taxable. If you didn’t have taxes withheld from your unemployment benefits (don’t worry many people don’t), you’ll be required to pay them at tax time. See here for information on how to have taxes withheld from your unemployment benefits.
 
In addition, unemployment benefits do not count as ‘earned income.’ This can possibly affect eligibility for the Earned Income Credit (EIC), a tax credit.    
 
If you choose to have taxes withheld from your unemployment benefits, it’s important to let TurboTax know. As you enter your unemployment benefits in TurboTax, you will need to check a box to indicate that you had taxes withheld. TurboTax will then ask you to enter the amount that was withheld, and we will apply it to your tax bill.
 
 

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