Do You Have To Pay Taxes on Unemployment Income?

The answer is usually yes

People standing in line at Job and Training Fair

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Unemployment benefits count as taxable income. You can choose to withhold federal income taxes from your unemployment benefits. If you don't, you might have to make quarterly estimated tax payments to the IRS.

If your state has income taxes, you may have to pay state taxes on your unemployment insurance as well. Check to see if you can withhold state income taxes from your unemployment as well. Alabama, California, Montana, New Jersey, Pennsylvania, and Virginia have income taxes but do not tax unemployment benefits as income.

Key Takeaways

  • Unemployment benefits are received through a joint state-federal program that provides compensation to eligible workers who are unemployed through no fault of their own.
  • Federal income tax is withheld from unemployment benefits at a flat rate of 10%.
  • You can use IRS Form W-4V to have taxes withheld from your benefits.
  • You might be required to make quarterly estimated tax payments directly to the IRS if you elect not to have taxes withheld.

How Do Unemployment Benefits Work?

Unemployment is a benefit paid by state or federal governments to help people who have lost their jobs through no fault of their own. It usually does not apply if you quit your job or were fired for cause.

If you believe you are eligible for unemployment, you would contact your state's unemployment insurance program to apply for unemployment benefits. Certain limitations apply as to the amount you're eligible to receive, and they can vary by state.

Unemployment taxes are paid by employers and these taxes go into a state fund to aid workers who have lost their jobs. The U.S. Department of Labor (DOL) monitors the system.


For the 2020 tax year, the American Rescue Plan Act (ARPA) included a provision that made the first $10,200 of unemployment compensation earned in 2020 tax-free for taxpayers with modified adjusted gross incomes of less than $150,000. The provision was not extended for the 2021 or 2022 tax years, and that means you'll need to pay taxes on unemployment income earned after the 2020 tax year.

Withholding Taxes From Unemployment Compensation

The IRS views unemployment compensation as income, and it generally taxes it accordingly. You can elect to have federal income tax withheld from your unemployment compensation benefits, much like income tax would be withheld from a regular paycheck.

Unfortunately, you don't have a choice as to how much you want to be withheld. Federal income tax is withheld from unemployment benefits at a flat rate of 10%. Depending on the number of dependents you have, this might be more or less than what an employer would have withheld from your pay.


You can use Form W-4V, Voluntary Withholding Request, to have taxes withheld from your benefits. Complete the form and give it to your unemployment office.

Making Estimated Tax Payments

You might be required to make payments directly to the IRS as quarterly estimated tax payments if you elect not to have taxes withheld from your unemployment benefits. This works out to a payment once every three months. You can elect to do this instead of having 10% withheld from every unemployment check, giving yourself a little bit of wiggle room when money is tight.

You might even have to make quarterly payments in addition to withholding from your benefits. You're obligated to make estimated payments if you expect that your withheld taxes plus any refundable tax credits you're eligible for will be less than 90% of what you'll owe, or 100-110% of the total taxes you owed last year, depending on your AGI.


You might want to consult with a tax professional because the whole equation can be complicated. You could accrue additional penalties if you don't pay enough tax, either through withholding or estimated tax payments.

Reporting Unemployment Income for Taxes

Your state's unemployment agency will report the amount of your benefits on Form 1099-G. The IRS gets a copy, and so do you. The form will also show any taxes you had withheld.

You must report these amounts on line 7 of Schedule 1. Then, add the amount of tax withheld from Form 1099-G Box 4 to line 25b of your Form 1040 or Form 1040-SR. Finally, attach Schedule 1 to your return.


There are different types of unemployment compensation in non-pandemic years, and most are taxable. The IRS offers an interactive tool on its website to help you determine whether the income you receive while unemployed must be reported on your return. You can take some steps to pay throughout the year if it is, so you can avoid owing the IRS taxes or penalties at tax time.

The Bottom Line

Your unemployment income will be taxed right along with any other income you might have earned during a calendar year.

Use Form W-4V to withhold any tax from your unemployment income, or pay quarterly taxes to ensure you don't owe the government any penalties come tax season. And always consider working with a tax professional or calling the IRS for help if you have questions about your specific situation.

Frequently Asked Questions (FAQs)

How do you claim unemployment benefits?

Unemployment benefits are offered at the state level. You'll need to contact your state's unemployment insurance program and follow its instructions for applying. In general, you'll need to complete an application that explains your situation and details where you worked, how long you worked there, how much you made, and why you're no longer employed. Your state's unemployment program will review your application and approve it, request additional information or an interview, or deny it. You can appeal if your claim is denied.

What can disqualify you from receiving unemployment benefits?

Each state has its own unemployment criteria and rules. Unemployment programs typically require you to be unemployed through no fault of your own and meet work and wage requirements. If you quit or were fired for cause, you usually don't qualify for unemployment. Self-employed people and contract workers usually aren't eligible for unemployment benefits, although there was assistance provided to them due to COVID-19.

Updated by Jess Feldman
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Get It Back Campaign. "Do I Have to Pay Taxes on my Unemployment Benefits?"

  2. Center on Budget and Policy Priorities. “Introduction to Unemployment Insurance.”

  3. Internal Revenue Service. "IRS Statement - American Rescue Plan Act of 2021."

  4. Internal Revenue Service. "Unemployment Compensation Is Taxable; Have Tax Withheld Now and Avoid a Tax-Time Surprise."

  5. Internal Revenue Service. "Form W-4V, Voluntary Withholding Request."

  6. Internal Revenue Service. "Publication 505 Cat. No. 15008E Tax Withholding and Estimated Tax," Page 22.

  7. Internal Revenue Service. "Unemployment Compensation."

  8. U.S. Department of Labor. "How Do I File for Unemployment Insurance?"

  9. Congress. “H.R. 748—CARES Act.”

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