Tax Prep & Planning

Is Unemployment Taxable?

Editor’s note: This post answers the (recent) frequently asked question, “Do you pay taxes on unemployment benefits?”

The Coronavirus outbreak has shaken the American economy to the core, effecting massive lay-offs, furloughs, and job loss. In fact, more than 36 million people have filed for unemployment in 2020 so far, according to the New York Times. That’s 18.6% of the US labor force

With so many people filing for unemployment—many for the first time, they wonder, “Is unemployment compensation taxable?” We’ll answer the question here…

First, what is unemployment compensation? 

If you recently filed for unemployment, then you probably know what it is. But if you haven’t or still have confusion about it, here’s the definition:

Unemployment compensation is money received under the unemployment compensation laws of the United States or of a state, including unemployment insurance benefits paid to you by a state from the Federal Unemployment Trust Fund. 

Supplemental unemployment benefits received from a company-financed fund are not considered unemployment compensation for this purpose. 

You must file for unemployment benefits in the state where you reside and provide ample proof you are out of a job. “Depending on the state, claims may be filed in person, by telephone, or online,” notes the U.S. Department of Labor.

So, is unemployment taxable?

Yes, unemployment benefits are taxable and should be reported as unemployment compensation on Line 7 of Schedule 1, Form 1040, Individual Income Tax Return.

What tax form will you get if you received unemployment benefits this year? 

If you received unemployment compensation in 2020, you should receive Form 1099-G, a tax form that shows the total amount of unemployment benefits you got from your state. If you requested voluntary income tax withholding by submitting Form W-4G, the amount withheld will be shown on Form 1099-G.

Get help with trusted tax experts

If you need help navigating how your unemployment compensation affects your upcoming tax return, let Block Advisors help. Drop off your taxes, or make an appointment, at a nearby office. 

If you want more information on Coronavirus and its impact on small businesses, check out our post on the CARES Act.

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