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Unemployment benefits are treated as regular income by the IRS.
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Unemployment benefits are subject to federal income tax, and state income tax where applicable.
The IRS and states that tax personal income treat unemployment benefits the same as income from a job.
If you can’t afford to pay the all the tax due, you can apply for an installment plan.
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If you received unemployment benefits in 2022, the money will be subject to income taxes.
As far as the Internal Revenue Service is concerned, your unemployment payments are treated just like any other regular income. How much you’ll have to pay at the state level, if anything at all, will depend on where you live.
How is unemployment taxed?
Unemployment benefits are generally taxed the same way income from a job would be by the IRS and most of the states that also tax personal income. The payments must be reported and are included as part of your gross income on your federal tax return.
However, nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Residents there will only owe federal income tax on their unemployment benefits.
Four of the states that do levy an income tax don’t collect it on unemployment benefits. They are California, New Jersey, Pennsylvania, and Virginia. Your state’s tax agency can help determine if and how unemployment is taxed. You’ll find a list of their websites here.
Quick tip: When applying for unemployment benefits, you can file Form W-4V to request withholdings to pay for income taxes. Unemployment withholdings have a standardized rate of 10%.
What counts as unemployment benefits?
In most cases, you will apply for and receive unemployment insurance payments from your state. However, there are other types of benefits funded by the federal government but paid through your state that also fall under the category of unemployment.
Other programs provide unemployment insurance to specific industries, such as railroad unemployment compensation benefits and unemployment assistance under the Airline Deregulation Act of 1978. There are also programs for federal employees and ex-military service members.
Quick tip: All unemployment assistance you receive should be added to gross income. If you’re unsure whether to include a payment, use the interactive tool on the IRS website.
How to pay taxes on unemployment benefits
If you received unemployment benefits in 2022 you should receive Form 1099-G by the end of January. It shows gross unemployment income you earned and how much, if any, was withheld for taxes. This income is reported on Schedule 1 of Form 1040, and filed as part of your federal income tax return.
What if I can’t pay the tax owed on unemployment?
Paying taxes on unemployment insurance payments can seem counterintuitive, since most recipients either are out of work or recently have been. This could lead to a situation where you have a tax bill that you can’t afford to pay.
In such a case, it’s important that you still file a return. If you’re unable to pay the tax you owe by your original filing due date, the balance is subject to interest and a monthly late payment penalty. There’s also a penalty for failure to file a tax return. So try to file on time, whether or not you can afford to pay the full balance due.
If your tax bill is too much for you to pay right now, pay as much as you can to reduce the amount of interest that will accrue. You can also apply to pay the balance in installments, allowing you to make monthly payments. You can request an installment agreement online through the IRS website, by filling out Form 9465, or calling the IRS for help.