Are Unemployment Payments Taxable?
With all of the layoffs that are currently taking place, I thought I’d spend a few minutes talking about whether or not unemployment benefits are taxable. In short, they are. Because unemployment payments are technically classified as income, you have to pay income tax on them. Sucks, huh?
Here’s the answer straight from the IRS (see Topic 418 for more details):
Unemployment compensation is includible in gross income. You must report unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.
If you receive unemployment at some point during the year, you should received Form 1099-G showing how much you were paid. Oh, and if you don’t make a “voluntary withholding request,” you might have to make estimated quarterly tax payments to avoid an underwithholding.
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Filed under: Taxes, Working
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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21 Responses to “Are Unemployment Payments Taxable?”
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March 6th, 2009 at 1:11 pm
Yep! I found this out this year – thankfully, since the government WANTS your money, they send out their 1099s pretty quickly. Also, thankfully, most states offer you the option when you request unemployment benefits to either have the taxes taken out or not to.
Although I highly, highly recommend people have the taxes taken out, I did not in 2008. Run the numbers – I was lucky in that I still got an enormous refund this year, but I know others may not be so lucky.
March 6th, 2009 at 1:40 pm
Ugh… I hate this rule. Here is what I don’t understand. Through your employment you and your employer pay unemployment insurance. So my question is, how can it be both insurance and income? I am under the impression that I don’t get taxed on anything my health insurance reimburses me on (unless I missed something). Same idea, right?
March 6th, 2009 at 10:31 pm
I think the rules vary by state, in California you don’t pay state income tax on unemployment funds. Only to the feds, I can’t guarantee other states have the same rules. I know the benefits and details vary greatly from one state to the next.
March 6th, 2009 at 11:09 pm
Kristen: Employees do NOT pay into unemployment insurance – there is never a deduction taken from an employee’s paycheck for it. UI is funded by employers who pay taxes. Calling it unemployment insurance makes it confusing, In some states it’s called unemployment compensation. Hope this helps.
March 8th, 2009 at 7:35 pm
Part of the stimulus bill was supposed to forgive some amount of taxation of UI benefits, up to $2400 of UI benefitsI thought I heard?
What I wonder about is this another case of double taxation? Was my employer paying post-tax dollars to unemployment, and now I and getting these funds and having to pay taxes on them too? I am having taxes withheld since I don’t know how long I will be unemployed.
March 9th, 2009 at 2:06 am
Don’t worry folks, the gov’t will make sure you get all your hard earned “tax” payments back…
March 27th, 2009 at 6:02 pm
Another example of the Obama forked tongue. He said, “Unemployment insurance would not be taxed in 2009.” Then when the actual law comes out it’s only the first $2,600 that is not taxed. In NJ max UI is $584 plus the stimulus $25 is $609. If you collect all year that’s $31,668, and a whopping $2,600 is not taxed. Wow, big deal let’s all kiss the Misssiah’s ring. Thanks Big Guy, you’re a real sport.
June 30th, 2009 at 12:48 pm
Mauobama is a joke with his typical professorial/lawyer double-speak They are all slimy lawyers that say a lot of nothing to keep their “jobs.” That is what the dopey americans fall for. Imbecilies, lackies, and do-nothings part of the reason why usa is in such bad shape. They want a cut of any and all money you make so they can pay for all the programs, political pay raises, pensions, OT, benies, obama’s limo, food, servants, chefs, etc…. complete govt. waste. Those work-addicted baby boomers are part of problem too, their greed and work-addiction has screwed this country permanentely. The employers continually terry nickel and dime you as the working suckers die a slow death by toiling away for years in some corporate dump.
January 2nd, 2010 at 2:22 pm
If someone knows the answer please help: Here’s my situation. I was laid off in Jan. 2009, I was also pregnant at the time. I collected disability and then when that ran out I collected my unemployment for the rest of the year. I only earned about $3000 from work and about $10,000 from unemployment. When I file my taxes in February, will I still get a refund? Also, I think I qualify because I had twins,for the EITC and also the child tax credit? Does anyone know if I would qualify for a refund or would I have to pay back because I collected unemployment. Thanks!
January 2nd, 2010 at 6:04 pm
Many years ago unemployment was not taxable. The theory being that the state would pay you about 60% of your gross, which for most people, would be close to your net. If you paid 7% Social Security, 15% federal tax, 3% state tax, and some percentage to medical insurance, savings (or 401k), pension, union dues, life insurance, etc., you had 40% withheld. $1,000 a week gross is about $600 a week take home. In NJ $1,000 a week gets you $584 a week unemployment. Then comes Jimmy Carter, a tax loving donkey with a peanut brain. Given enough time the donkey’s will figure a way to get it all. It comes under the heading of income distribution.
January 4th, 2010 at 12:03 am
ALL OF THIS SUCKS. WE WORK FOR A MANUFACTURER IN THE STATES FOR A VERY LONG TIME. THEN, THEY DECIDE TO MOVE PRODUCTION TO MEXICO….THER WENT OUR JOBS….NOW WE HAVE TO PAY TAXES ON UNEMPLOYMENT BECAUSE OUR JOBS WENT SOUTH? THINK ABOUT IT. LOOK AT LEVIS….THEY ARE NOT MADE HERE ANYMORE…I WILL NOT BUY THEM AGAIN, AND I HOPE NO ONE ELSE DOES EITHER!
January 19th, 2010 at 9:24 pm
Yes, having to pay taxes on unemployment income isn’t fair, but then neither is taxing up to 85% for the gross Social Security benefits.
GOOD news for Tax Year 2009 which everyone will be filing right about now is, the FIRST $2,400.00 of unemployment income is NON-TAXABLE. This can be confirmed by going to http://WWW.IRS.GOV and/or the Publication 17 page 91.
There are some new credits, refundable and non-refundable, that are now available. PLEASE, go through the Publication 17 thoroughly.. would highly recommend going to the IRS site for more information then you would ever think. EFILE is a good place to start, many can Efile for free, just be sure to work it at home first, advise using a good tax program,and double check to make sure all your entries are correct.
For those who received retirement income, please check Box 7 on those 1099-Rs, if that’s a distribution 1 and you are or were UNDER the age of 59 1/2 there’s a 10% additional penalty tax for early distribution. If any of it is non-taxable, use Form 8606, if you may be exempted from the 10%, complete Form 5329 with the correct exemption code. Publication 590 is the source for retirement income.
IF you should receive a notice from the IRS, PLEASE read it completely and thoroughly, most of your questions can be answered by doing so. If you do not want a return call, do not put your phone number on the reply. And remember, cell phones are NOT secure, your personal information is at risk.
For more information and tax tips, again, http://www.irs.gov is the best source.
March 16th, 2010 at 12:53 pm
Do you know if I have to pay the Social Security tax for the unemployment amount I collected during 2009?
I know that I have to pay federal and state taxes on the money I received from Unemployment, but my question is if I have to pay 7% Social Security/MedicAid in addition to Fed and State taxes?
Thanks.
March 16th, 2010 at 8:28 pm
No on the Social Security. Yes on Federal tax less a $2400 deduction. State tax depends on the state. NJ is no tax on unemployment.
March 17th, 2010 at 9:23 am
Perfect. Thanks Bandido!
April 5th, 2010 at 11:01 pm
One of the posts above is wrong! Check your paystub. In some states they do in fact deduct from employees for unemployment while in some states only the employer pays into the goverment fund. (Of course the bottom line is that when the employer pays; it is actually the employee paying thru lower wages.)
Besides the obvious problem of exessive taxing there is a lot of confusing verbage in the IRS tax code that makes it difficult to calculate the ‘correct’ tax. It seems to depend on who pays into the fund, if the payments were deducted, etc. Etc. Etc. Then of course there is a limit as well.
April 12th, 2011 at 1:14 pm
I collected Unemployment benefits and Social Security in 2010. I know the Unemployment wages are taxable, but do I add Social Security amount to my EZ form and get taxed on that too?
November 18th, 2011 at 2:44 pm
Wow, unemployment taxed? we truly suck.
November 18th, 2011 at 3:35 pm
Stupid rule, right? It didn’t used to be that way, but those we elected changed it. It would be different if you received 100% of what you made while working but they already reduce it by 40%. I for one am changing to Republican this year. I’m tired of the people I’ve backed expecting me to pay for so many others. Maybe the other side is right, government is too big and taxes are too high.
January 5th, 2012 at 11:36 am
If i have to file a 1099 g and have a child will i get a refund.
April 2nd, 2012 at 4:49 pm
this still does not answer why we let unemployment money be taxed, government money going back to the government. sounds like a racket.