The U.S. Bureau of Labor & Statistics (BLS) defines people who are jobless, looking for a job, and available for work as being unemployed. This includes anyone who is contacting potential employers, submits resumes or applications, or answers job advertisements.
Generally, when this happens, an individual is eligible to apply for government-sponsored unemployment benefits to receive temporary financial support. Also commonly known as unemployment insurance, this is a joint state-federal program that provides cash benefits to eligible workers.
If you received unemployment benefits, then from a tax perspective you were considered to be unemployed for all or part of the tax year.
Do I Have to Pay Taxes on Unemployment Benefits?
Yes, you must report unemployment benefits as earned income on your federal tax return. The only exception is if you elected to have these taxes automatically withheld (an option that can be selected at the time of applying for unemployment insurance) or if quarterly estimated tax payments were made.
If you live in a state or city that requires income taxes, then you may also be required to report unemployment benefits on these tax returns as well. If you are unsure, check the website for your state, county, or local unemployment office, or contact them directly.
Will This Affect My Eligibility for Any Tax Credits?
Unemployment benefits may or may not count toward the income requirements for some tax credits. For example, with the earned income tax credit (EITC), unemployment benefits do not count as earned income. For other potential tax credits, it will depend on their specific rules.