Do I Have to Pay Taxes on Unemployment Compensation?

Losing your job can turn your world upside down. Fortunately, unemployment benefits offer some financial breathing room when things get tough. But if you received unemployment income in 2024, there’s something else you need to think about: taxes.

Yes, unemployment compensation is taxable—but the details matter. Here’s what you need to know to file your taxes confidently and avoid surprises.

First Things First: Is Unemployment Income Taxable?

Short answer: Yes—at least at the federal level.

The IRS treats unemployment benefits like regular income. That means you’re expected to report it when filing your federal tax return.

But don’t worry—we’ll show you exactly how to do that. It’s easy.

What Form Should I Look Out For?

You’ll receive Form 1099-G from your state’s unemployment office. This form shows:

• Box 1: Total unemployment income you received

• Box 4: Federal tax withheld

• Box 11: Any state tax withheld

You’ll use this information to report your unemployment income on Schedule 1 of your federal return.

What About State Taxes?

Now here’s where it gets interesting: state tax laws vary.

• No state income tax? No worries—you’re in the clear.

• States that don’t tax unemployment at all (even though they do have income tax):

  
  

  Alabama, California, Montana, New Jersey, Pennsylvania, and Virginia.

If your state isn’t on this list, your benefits might be taxed just like regular income. Check with your state’s tax agency to be sure.

Can I Choose to Withhold Taxes from My Unemployment?

Absolutely—and many people do.

When you sign up for unemployment, you can choose to have 10% of your payments withheld for federal taxes.

Didn’t select that option? You can still fill out Form W-4V to start voluntary withholding.

Other options include:

• Making quarterly estimated tax payments throughout the year, or

• Paying the total tax owed when you file your return.

States have their own processes, so be sure to check if your state offers withholding options too.

Who’s Eligible for Unemployment Benefits?

Before we go further, here’s a quick recap of who qualifies for unemployment:

1. Job loss wasn’t your fault. Layoffs, furloughs, or similar situations usually qualify. Quitting or getting fired for misconduct often doesn’t.

2. You’ve worked and earned enough in the previous year, as defined by your state.

3. You’re actively looking for work and are available for a job.

4. You may need to register with your state’s job service.

Requirements vary by state, so be sure to review your state’s eligibility guidelines.

Bonus Tip: You Might Qualify for Tax Credits

If your total income dropped this year due to unemployment, you might now qualify for tax credits you couldn’t claim before. One example is the Earned Income Tax Credit (EITC)—a refundable credit that can reduce your tax bill or increase your refund.

What Happens If I Don’t Withhold Enough Taxes?

If you didn’t have enough withheld—or didn’t make estimated payments—you might owe money when you file. But don’t panic:

• You can pay any taxes owed when you file, or

• If you overpaid, the IRS will send you a refund.

Planning ahead is key.

How to Report Unemployment

We make it easy.

Here’s how:

1. Log in to your return and go to the Federal section.

2. Click on Other Income, then choose Unemployment Compensation.

3. Click + Add Form 1099-G and fill in your info—or click Edit if you already started.

4. Just follow the step-by-step prompts. We’ve got you covered.

Final Thoughts

Unemployment benefits help ease financial stress, but they come with tax responsibilities. Here’s a quick recap:

•  They’re taxable federally

•  State rules vary—some tax, some don’t

•  Form 1099-G will tell you exactly how much you received

• Withholding or planning for taxes now will make life easier later

• You may qualify for extra tax credits

At SimpleTax, we guide you through every step of reporting unemployment income—so you can file smarter, not harder