Updated: Feb 8, 2021
As the time to file our taxes approaches, we wanted to give our community a brief rundown of what to expect.
Unfortunately, yes, unemployment insurance is considered taxable income by the IRS and you do have to include your unemployment insurance information when filing your taxes this year. This is true whether you had tax already withheld or not. Some states also consider unemployment taxable income.
If you did not have taxes automatically withheld from your unemployment, then unfortunately you may end up owing money when you file your taxes this year, but it will differ for each person. Tax credits may help lessen how much you owe.
What IS taxable?
All UI and PUA payments.
FPUC $600 enhanced unemployment boost
Lost Wages Assistance $300 boost.
Disability benefits paid as a substitute for unemployment compensation.
What isn't taxable?
I think I already paid these taxes... did I?
Maybe! When you filed for your UI, you should have been prompted to choose whether you would like to have Federal Income taxes deducted. If you chose yes, then they should have taken 10% of each payment, which is why your $300 hit your bank account as $270. If you were not asked, but would like to have tax withheld, or would like to change your decision there is a form you can fill out here.
Even if you DID have tax automatically withheld from your unemployment payments, you may still owe additional money. You still have to claim it on your taxes.
How Does It Work? What do I need to do?
You should file your taxes however you usually do, you will just have to fill out the section on Unemployment Benefits and use a 1099-G. The state agency that paid your unemployment benefits will issue you a 1099-G form for all payments you received in 2020. It will be available by the end of January and you can have it mailed to you. In many states, it is available to print right in your online unemployment portal where you file each week.
When you get this form, make sure it is correct by adding up the money you received in your account and checking the numbers.
Box 1 on the form is how much you received and Box 4 is how much tax you paid. You will have to input these numbers into your taxes.
Will I be taxed by my state, in addition to the federal government?
In most states, yes, unemployment benefits are taxable income. However in 13 states you will NOT owe state taxes on your UI.
According to CNBC, "in California, Montana, New Jersey, Oregon, Pennsylvania and Virginia, your unemployment benefits are tax-exempt. Additionally, seven states —Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — do not levy any state income taxes."
Even if your state does not tax your unemployment benefits, you may still owe FEDERAL taxes on it. You still have to file and claim it.
What about stimulus checks?
Stimulus checks aren't income at all; they're actually tax credits (i.e. they directly reduce the tax dollars you owe and/or increase the refund you're owed). These payments were a tax credit on your 2020 taxes, even though they were based on 2019 income. You don't have to claim these checks as income or input them into your taxes at all.
If you didn't qualify for the stimulus checks or only received partial checks based on your 2019 income, but would have qualified based on your 2020 income, you can apply for a Recovery Rebate Credit. More information on that from the ISR here and if you're still struggling to understand the intricacies, check out this helpful article here.
We know this can be confusing and frustrating, but we hope this information helps. Tax credits may lessen the amount you owe in taxes so don't panic. For more information or answers to your questions check out the IRS website or your state unemployment website. If you're not sure how to find your state website, just google (state name) unemployment taxes.
In Solidary, The ExtendPUA.org Team
PS - Don't forget to push your legislators to pass retroactive and continued pandemic relief. There is also a proposal on the table for unemployment taxes to be forgiven/refunded. Call your legislators and tell them you need that provision passed. Easy tools to take action at ExtendPUA.org