Unemployment Taxes

 The IRS considers unemployment compensation to be taxable income, which you must report on your federal tax return.  State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year.

If you received unemployment benefits this year, you can expect to receive a Form 1099-G that lists the total amount of compensation you received.  The IRS considers unemployment compensation taxable, which you must report on your federal tax return.  States can also count unemployment benefits as taxable income.

Unemployment compensation is a form of monetary assistance provided by the federal and state governments to people who are out of work.  These benefits are mostly funded by taxes that are paid by employers at the federal and state levels.

Unemployment benefits are included along with your other income such as wages, salaries, and bank interest (for tax year 2020, the first $10,200 of unemployment income were tax free for taxpayers with an AGI of less than $150,000).  The total amount of income you receive, including your unemployment benefits, and your filing status will determine if you need to file a tax return.

State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year.  On the form, you'll see the total amount of your compensation reported in Box 1.

You report your unemployment compensation on Schedule 1 of your federal tax return in the Additional Income section.  The amount will be carried to the main Form 1040.  Ensure you keep tax records by maintaining the 1099-G and forms.