- Personal Finance
- Taxes
Many people who lose their jobs are surprised to learn that unemployment benefits are taxable. If you didn’t have taxes withheld from your benefit check, you could find yourself owing money when you file your return.
Wondering how unemployment will affect your taxes? Don’t panic. We’ll explain how unemployment benefits are taxed and what to do if you can’t afford to pay. You’ll also learn about tax credits you may be eligible for if you collect unemployment and how to avoid an unexpected tax bill.
Who qualifies for unemployment compensation?
Unemployment insurance is administered by states (but each state follows federal guidelines) to provide temporary cash benefits to workers who have lost their jobs. Though each state has its own requirements, you’ll generally need to meet two criteria to qualify for UI compensation:
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You’ll need to have worked for a minimum amount of time (called a base period) during which you earned a minimum amount in wages.
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You lost your job through no fault of your own.
You’ll usually apply for benefits in the state where you worked. Many states require you to file unemployment claims weekly or biweekly to maintain eligibility.
How unemployment benefits are taxed
Unemployment benefits — also called unemployment insurance — are subject to federal income taxes. Depending on where you live, you could owe state and local taxes as well.
Federal income taxes
Unemployment benefits are generally considered taxable income at the federal level and must be reported to the Internal Revenue Service. The tax rate you pay is determined by what tax bracket you fall into based on all your income sources — not just unemployment benefits, but also any money you earned if you worked during the year.
Tax withholding on unemployment benefits is voluntary. You can ask your state unemployment office to withhold a flat 10% for federal income taxes by filling out IRS Form W-4V, Voluntary Withholding Request. If your state has its own withholding form, use that form instead.
Be aware, though, that the 10% withholding may not cover your full tax liability, particularly if you have other sources of income. To avoid a large bill on tax day, you can also make quarterly estimated tax payments, which are typically made by freelancers and self-employed people.
If you don’t pay taxes on unemployment income throughout the year, you could face an underpayment penalty when you file.
You should receive tax Form 1099-G, which shows how much you received in unemployment payments, as well as any taxes withheld. Some states mail the form, while other states require recipients to get the electronic version from their websites.
Though you’ll owe federal income tax on unemployment benefits, you won’t have to pay Social Security or Medicare taxes (known as payroll taxes) on your benefits.
For a comprehensive look at the rules on federal income taxes and unemployment, visit the IRS website on unemployment compensation.
State income taxes
Most states levy income taxes and require unemployment recipients to pay state taxes on their benefits. There are some exceptions, though.
If you live in one of these nine states, you won’t pay taxes at the state level on your unemployment because these states have no income taxes:
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Alaska
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Florida
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Nevada
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New Hampshire
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South Dakota
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Tennessee
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Texas
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Washington
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Wyoming
The following six states and the District of Columbia shield unemployment compensation from taxable income:
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Alabama
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California
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Montana
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New Jersey
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Pennsylvania
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Virginia
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Washington, D.C.
In the remaining 33 states, you should prepare to pay state taxes on your unemployment. Visit your state’s Department of Revenue website to find out what state and local taxes apply.
Tip: If you need help with tax preparation, visit the IRS Free Tax Prep Help search tool to find an IRS Volunteer Income Tax Assistance (VITA) program or Tax Counseling for the Elderly (TCE) program near you.
Read more: IRS eliminates Direct File. How can I file my income taxes for free now?
Up Next
Tax credits that could lower your unemployment tax bill
Tax credits offset the amount of your tax bill dollar for dollar. If the credit is refundable and exceeds what you owe, the IRS will issue the extra amount to you as a tax refund. If it’s nonrefundable, you can use the credit to reduce your tax liability, but you won’t receive a refund for any excess amount.
Here are some tax credits you might qualify for if you receive unemployment.
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Earned income tax credit: The EITC is a tax credit for working people who have low to moderate incomes. As the name says, you need to earn income to qualify. Unemployment compensation doesn’t count as earned income for this credit. But if you worked part of the year and then lost your job, you may qualify. In fact, you could find yourself eligible for EITC, even if you didn’t qualify in the past, if your income was substantially lower for 2025 than in previous years.
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Child tax credit: If you have dependent children who were 16 or younger at the end of 2025, you could be eligible for the child tax credit, even if you didn’t work during the year. The child tax credit is worth up to $2,200 per qualifying child in 2025 and 2026. The credit has a refundable portion of up to $1,700, which is known as the additional child tax credit. But you’ll need at least $2,500 in earned income to qualify unless you have three or more qualifying children.
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Child and dependent care credit: If you earned income from working during the year and you paid for childcare so you could either work or search for work, you could qualify for the child and dependent care credit. The credit is available if your child was younger than 13 when you paid for their care. The credit is also available to families who paid for the care of a dependent who’s physically or mentally unable to care for themselves, even if the dependent is 13 or older.
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Saver’s credit: If you contributed to a retirement account before losing your job, you may be eligible for the saver’s credit. The maximum credit is 50% of your retirement contribution, up to $2,000 for single taxpayers or $4,000 for married couples filing jointly. The saver’s credit is nonrefundable. That means that it can lower your tax bill, but you won’t receive any excess amount as a tax refund.
Read more: Tax credit vs. tax deduction: Which is better?
How to report unemployment on your tax return
To report unemployment compensation on your taxes, follow these steps. You'll need Form 1099-G, which is issued by state unemployment agencies. You should receive the form in the mail by Jan. 31, though you may also be able to access it on your state agency website. You’ll need the following information from the tax form:
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Box 1: Total unemployment compensation
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Box 4: Federal taxes withheld
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Box 11: State taxes withheld
If you’re using tax software, you’ll simply enter the information above when prompted. But if you’re filling out paper forms, you’ll report jobless compensation on Schedule 1 under “additional income,” then carry over the information to Form 1040. Regardless of how you file, make sure you keep a copy of any Form 1099-G you receive with your tax documents.
Read more: Free tax filing: How to file your 2025 return for free
What if you can’t afford taxes on unemployment?
Even if you can’t afford to pay your taxes, you’ll still want to file your taxes or request an extension by April 15, 2026. Failure-to-file penalties are much steeper than failure-to-pay penalties, so you don’t want to miss the filing deadline. If you owe money, you’ll probably have the option of an IRS payment plan. Most taxpayers who owe less than $50,000 can set up an installment plan online and make monthly payments for up to 72 months.
If you’re still collecting benefit payments, consider asking your state unemployment agency to withhold 10% for federal taxes. Finding extra room in your budget for voluntary withholding can be challenging when you’re not collecting a paycheck. But if you can have money withheld and still stay afloat, filing your income tax return next year will be less stressful.
Taxes on unemployment FAQs
Can you get a tax refund on unemployment?
You can get a tax refund on unemployment if you paid more than you owed in taxes over the year. Qualifying for refundable tax credits can help you get money back at tax time.
Does unemployment count toward AGI?
Yes, unemployment counts toward your AGI, or adjusted gross income. You’ll need to report it on Schedule 1 of your federal tax return under the “additional income” section, then carry over the amount you received onto Form 1040.
Is there a tax credit for people who lose their jobs?
There’s no tax credit or deduction specifically for people who have lost their jobs. However, if your income is lower as a result of losing your job, you could qualify for tax credits like the earned income tax credit if you earned money working at some point in the year. Such credits can lower the total amount you owe in taxes and could even result in a refund, depending on the tax credit.
What happens if I don’t report unemployment benefits?
If you don’t report unemployment insurance benefits, you could face tax penalties. If you already filed your return but forgot to include jobless compensation, you’ll need to file an amended return using IRS Form 1040-X and include Form 1099-G to report your benefits.
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