Is unemployment compensation considered income on my tax return?

Modified on Thu, 02 Feb 2023 at 08:08 PM

Yes, any benefits received through unemployment are taxable and must be reported as income on your federal and state tax returns. 

You can find the amount of unemployment compensation you received for the year on IRS tax form 1099-G (Certain Government Payments), which the government will mail to before the tax filing deadline.

While unemployment benefits are taxed like income, taxes are not automatically deducted when you receive your benefits. For example, when you receive a paycheck through an employer, taxes are usually automatically withheld. But, with unemployment benefits, this withholding process is not automatic. Not paying federal taxes throughout the year means you may owe the government money when you file your tax return.

You can avoid a surprise tax bill by requesting to have federal and state income tax automatically withheld when you first sign up. If you’re already receiving unemployment and taxes aren’t being withheld, you can change this  by filing form W-4V (Voluntary Withholding Request). You can also make quarterly estimated tax payments throughout the year.

If you can’t afford to have money withheld or to make payments throughout the year, you can elect to receive the full benefit. In this case, it’s possible that you may owe taxes when filing your federal return.

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