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Is unemployment taxable? How the 1099-G and withholding work

Yes: unemployment benefits are taxable income on your federal return, and many states tax them too. Your state reports what it paid you on Form 1099-G, which it must send by the end of January. You can ask the state to withhold federal tax from each payment, using Form W-4V, or pay estimated tax yourself, so that you do not owe a bill in April.

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Federal tax

Unemployment compensation counts as income on your federal return. The IRS lists it as taxable, and you report it with your other income when you file. The temporary federal exclusion that applied to part of 2020 benefits has ended.

State tax

Whether your state taxes the benefits depends on the state. States with no income tax do not. A few states that have an income tax exempt unemployment benefits, including California, New Jersey, Oregon, Pennsylvania and Virginia. Most others follow the federal rule and include them. Check your state’s tax agency for the current rule.

Withholding

  • You can ask the state to withhold federal income tax from each payment by filing Form W-4V, the IRS voluntary withholding request, where you choose the percentage from the options on the form. Many states offer it in your online account. The state may also offer a state tax withholding option.
  • If you do not withhold, you can make quarterly estimated tax payments to the IRS and your state. Without either, you may owe the whole amount at filing, and a penalty for underpayment.
  • Severance is taxed separately as wages. Employers generally withhold 22% federally from it, and more if the payment is over $1 million.

The 1099-G

  • The state sends Form 1099-G by January 31 for the year before. Box 1 shows the unemployment you were paid. Box 4 shows federal tax withheld.
  • Most states also post it in your online account. Look there first if the mail is late.
  • If your amount looks wrong, call the state agency. If you got a 1099-G for benefits you never claimed, someone may have filed in your name; report it to the state, which can issue a corrected form, and follow the IRS identity-theft steps.
  • If you repaid benefits in the same year, ask for a corrected form. Repayments in a later year are handled differently on your return; ask a tax preparer.

Plan for it

If you did not withhold, set aside about a fifth to a quarter of each payment until you know your bracket. Our unemployment estimator shows what a claim is likely to pay, and the layoff runway tool shows how long your money lasts after tax.

Frequently asked questions

Is unemployment income taxable?

Yes, on your federal return. Many states tax it too, though states without an income tax and a few with one, such as California, New Jersey, Oregon, Pennsylvania and Virginia, do not.

How do I have taxes withheld from unemployment?

Ask the state to withhold federal tax with Form W-4V, choosing a percentage from the options on the form. Without withholding, make quarterly estimated payments or you may owe at filing.

When do I get my 1099-G for unemployment?

States mail it by January 31 for the previous year. Most post it in your online account first.

I got a 1099-G for unemployment I never received. What do I do?

Report it to the state right away. It may be identity fraud, and the state can correct the form. Do not report income you did not receive.

Is severance taxed differently from unemployment?

Yes. Severance is wages, with payroll taxes and typically 22% federal withholding. Unemployment has no payroll tax, and federal withholding is optional.

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