Are Unemployment Benefits Taxed?

 

The federal government taxes unemployment benefits as ordinary income. You’ll receive a From 1099-G form from your state unemployment office in January 2021 reporting the total unemployment compensation you received in 2020 and whether or not you had any state or federal taxes withheld from your payments. This information will be reported on your 2020 Federal Income Taxes.

You can avoid a surprise tax bill if you choose to have income taxes withheld from your payments when you apply for benefits OR you can file IRS Form W-4V ,  Voluntary Withholding, with your state unemployment office to request that taxes be withheld from your unemployment benefits. Note: You can only request that 10% of each payment be withheld from your unemployment benefits for federal income taxes.

You may decide not to have taxes withheld if you need all of the money right now, but if you can have taxes withheld as you receive your payments, it can help avoid a surprise at tax time.