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Paying taxes on unemployment benefit

Paying taxes on unemployment benefit

Over 36.5 million Americans have filed for unemployment over the past eight weeks as the coronavirus pandemic hit the U.S. and prompted many businesses to hit pause.

But thanks to federal lawmakers, more out-of-work Americans can apply for unemployment benefits and also get more in their pocket under new, temporary rules put in place.

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

About unemployment compensation

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.

Generally, employees who are laid off or who lose their jobs through no fault of their own typically qualify for unemployment benefits. Taxpayers who want to receive unemployment compensation must apply for benefits through their state programs. The amount of compensation they receive depends on:

  • the amount of time they worked
  • their earnings
  • the maximum benefit their state allows

Reporting unemployment benefits on your tax return

You report your unemployment compensation on your federal tax return in the income section. The amount will show up on a specific line of your tax form. Remember to keep all of your forms, including any 1099-G form you receive, with your tax records.