Unemployment Taxes: Frequently Asked Questions

Did you have unemployment income? Here’s what you need to know to file your taxes.

Do I have to pay income taxes on unemployment benefits?

Federal income taxes do apply to unemployment benefits. The reason is that unemployment benefits replace work income that would have been taxable.

Some states also tax unemployment benefits, while others don’t.

Where do you enter unemployment income on a tax return?

Unemployment is a line on your Form 1040 under Schedule 1, Part 1, Additional Income. Do not enter unemployment income as a W-2.

If you use tax software, it will usually ask you if you received unemployment during the year when you’re reviewing the income section of the software.

What if I already paid taxes on unemployment?

If you have taxes taken out of your unemployment checks, it works like when you have taxes taken out of a paycheck. The withheld taxes are an estimate of what you’ll owe.

When you file your tax return, you’ll calculate the correct amount of tax. If you had too much in taxes taken out of your unemployment check, you’ll get a refund. If you didn’t have enough withheld, you may have to pay more depending on what else is on your tax return.

How do I report unemployment on my taxes if I moved states?

When you move states, you generally need to file tax returns in both states for that year. Your unemployment benefits will generally go on the tax return for the state you were living in when you received them.

Is there a pause on unemployment taxes due to COVID-19?

During calendar year 2020 (tax returns filed in April 2021) only, there was no federal income tax on your first $10,200 in unemployment benefits.

There is no tax break on unemployment benefits for 2021 and beyond.

How do unemployment benefits affect the Earned Income Tax Credit?

Unemployment benefits don’t count as earned income to qualify you to receive the Earned Income Tax Credit. Unemployment benefits do increase your AGI and can reduce your EITC if your AGI is too high.

Can you contribute to an IRA based on unemployment benefits?

In order to contribute to an IRA, you must have earned income equal to or greater than the amount you want to contribute. Unemployment benefits do not count as earned income.

Can I file unemployment taxes for free?

Most tax software companies, include unemployment benefits in their free tier. If your AGI was $73,000 or less, you may qualify for IRS Free File.

How do I file my taxes if I never received my 1099-G?

If you never received your 1099-G, you can still file as long as you know how much you received and how much you had withheld. You can check your bank statements or your state’s online unemployment portal to get the info you need.

What do I do if I had to repay unemployment benefits?

If you repaid unemployment benefits in the same year you received them, subtract the repayment from the amount you received. If your 1099-G is incorrect because your state didn’t subtract the repayment, either request a corrected 1099-G or just file with the correct number. If you file without requesting a corrected 1099-G, the IRS may send you a letter asking you to explain the difference. Example: You received $5,000 and repaid $1,000 -> report $4,000 in unemployment benefits on your tax return.

If you repaid unemployment benefits in the following year (or later):

  • Include the full amount of what you received (including the amount repaid) in income for the year you received it.
  • In the year you repaid the overpayment, calculate your tax return two ways and use the method that results in less tax:
    • Include the repayment amount as an itemized deduction.
    • Calculate how much extra you paid in tax the previous year and take a tax credit for that amount. For example, if you had to repay $1,000 and were in the 22% bracket when you received it, your tax credit will be $220.

What happens if I didn’t have enough taxes withheld from my unemployment payments?

If you didn’t have enough taxes withheld from your unemployment payments, you will owe additional taxes when you file your tax return. If you owe more than $1,000 in total, you may have to pay a penalty for not having enough money withheld.

If you realize you didn’t have enough taxes withheld during the same calendar year you received unemployment benefits you can either 1) make an estimated tax payment or 2) opt for higher withholding when you return to work.

Why did adding unemployment benefits to my tax return make my refund go down?

Having your refund go down when you enter your unemployment income is common. The withholding rate is often too low for most people, so you may not have had enough taxes taken out.

What do I do if I filed for unemployment but never received payments?

If you filed for unemployment but never received your payments, you generally won’t pay taxes until you actually receive the payments. A common situation is when your unemployment payments are delayed until the next tax year because your application is still pending. You pay taxes in the calendar year you actually receive the money.

Example: You file an unemployment claim in late 2021 but aren’t approved until 2022. In early 2022, your state pays you the benefits you should have received between the date of your claim and 12/31/21. Even though that payment was for an unemployment period in 2021, you received it in 2022 and will include it on your 2022 tax return filed in April 2023.

Are unemployment benefits for a claim in 2020 not received until 2021 eligible for the 2020 exclusion?

No, the 2020 unemployment tax exclusion was only for payments received in 2020. If you received the money in 2021, even if it was for a period in 2020, you aren’t eligible for the exclusion.

What do I do if I forgot to include my unemployment income on my tax return?

If you forgot to include your unemployment income when you filed, you’ll generally want to file an amended tax return. An amended return is submitting a new, corrected tax return.

You’ll also usually need to include a payment for the additional tax owed. If you were expecting a refund, you shouldn’t expect the extra taxes to come out of your refund. The IRS takes a long time to process amended tax returns and will usually issue your refund before it gets to your amended return.

If you wait until the IRS sends you a bill for the extra taxes you should have paid, you may owe additional penalties and interest.

What happens if I don’t amend my tax return?

The IRS gets a Form 1099-G from the state unemployment office showing what they paid you. If you don’t include that income on your tax return, the IRS computers will automatically flag your return.

The IRS will calculate the additional amount you owe and send you a bill. It will usually take several weeks or months to do so. In addition to the extra taxes, you will owe interest and penalties from when your tax return was due (not when you get the bill) until you pay in full.

What do I do if my accountant didn’t include my unemployment benefits on my tax return?

When you sign your tax return, you are responsible for checking to make sure that it’s correct and nothing is missing. You will need to amend your return and pay any interest and penalties.

Your accountant has no responsibility for the error other than general customer service. Often, your accountant has no way of knowing you received unemployment unless you told him or her. Even if you did provide your accountant with your 1099-G, you often accept your tax return as-is once you sign it.

Where do I file for unemployment if I’m a remote worker?

In most cases, remote workers file for unemployment in the state where they were working. If you were working for a New York company but work from home in New Jersey, you file for unemployment in New Jersey.

Things can get complicated if you split time between working in an office and at home or otherwise work in more than one state. You may want to talk with an employment lawyer to find out what rules apply in your situation.

Can unemployment take my tax refund if they said I received too much?

Yes, you may lose your tax refund to cover any amounts you owe to unemployment due to receiving too much. You should have received a letter explaining why you weren’t eligible or had your benefits adjusted. If you disagree with the findings, you will need to appeal to unemployment rather than to the IRS.

If I wasn’t working and didn’t receive unemployment benefits, do I need to file a tax return?

You only need to file a tax return in years you’re required to based on your income or other factors. If you were living off of your savings, you might need to file if you had interest or capital gains that put you over the minimum amount to file.

If you truly had zero income, you generally won’t need to file a tax return unless you need to file for other reasons like claiming your stimulus payment.

What do I do if I received a 1099-G but never filed for unemployment?

If you received a 1099-G and never filed for unemployment, first double check the amount on the 1099-G wasn’t your state tax refund. State tax refunds also go on 1099-G.

If the 1099-G is for unemployment benefits, this may be a case of identity theft. Immediately contact the unemployment office so they don’t hold you responsible for the fraud. You may want to take other steps to protect your identity like checking your credit report.

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