What are the tax implications of receiving unemployment benefits?

Taxation of Unemployment Benefits for Individual Taxpayers

Unemployment Compensation as Taxable Income

Unemployment compensation is considered taxable income for federal income tax purposes. Individuals who receive unemployment benefits must include these payments in their income when filing their federal income tax return.

Reporting Unemployment Compensation

- You should receive Form 1099-G, Certain Government Payments, which shows the amount of unemployment compensation paid to you during the year in Box 1.

- To report unemployment compensation on your tax return, enter the amount from Form 1099-G Box 1 on line 7 of Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

- If tax was withheld from your unemployment compensation, enter the amount from Form 1099-G Box 4 on line 25b of your Form 1040 or Form 1040-SR.

- Attach Schedule 1 to your tax return.

Tax Withholding and Estimated Tax Payments

- You can choose to have federal income tax withheld from your unemployment compensation by submitting Form W-4V, Voluntary Withholding Request, to the payer.

- Alternatively, you may make quarterly estimated tax payments to cover the tax liability on your unemployment compensation.

Special Exclusion for Tax Year 2020

- Under The American Rescue Plan Act of 2021, there is an exclusion of up to $10,200 of unemployment compensation for the tax year 2020 if your adjusted gross income (AGI) is less than $150,000. This exclusion is available regardless of filing status and does not double for married individuals filing jointly.

- Any unemployment compensation exceeding $10,200 (or $10,200 per spouse if married filing jointly) is taxable income that must be included on your 2020 tax return.

Fraudulent Unemployment Compensation Claims

- If you receive Form 1099-G with incorrect unemployment compensation amounts due to identity theft or fraud, contact your state unemployment agency to correct the issue.

Please ensure that you follow the latest IRS guidance and use the appropriate forms and instructions when reporting unemployment compensation on your tax return.

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Sources:

Unemployment Compensation | Internal Revenue Service 2024-08-04

Tax Treatment of 2020 Unemployment Compensation 2024-08-02

TAS Tax Tips: American Rescue Plan Act of 2021 individual tax changes ... 2024-07-30

Federal Unemployment Tax | Internal Revenue Service 2024-08-02

Tax scams/Consumer alerts | Internal Revenue Service 2024-07-31

Topic no. 418, Unemployment compensation | Internal Revenue Service 2024-08-01

Let us help you | Internal Revenue Service 2024-08-03

Publication 525 (2023), Taxable and Nontaxable Income 2024-08-03

Questions and answers on the Premium Tax Credit 2024-08-02