The way unemployment benefits are taxed depends on the program providing them. Unemployment compensation includes payments received under U.S. federal and state laws, such as:
State unemployment insurance benefits
Payments from a state or the District of Columbia funded by the Federal Unemployment Trust Fund
Railroad unemployment compensation benefits
Disability benefits acting as a substitute for unemployment compensation
Trade readjustment allowances under the Trade Act of 1974
Assistance provided under the Disaster Relief and Emergency Assistance Act of 1974
Unemployment aid under the Airline Deregulation Act of 1978 Program
Benefits from a private fund if you contributed voluntarily and received more than your total contributions
If you received unemployment compensation during the year, it must be included in your gross income. To determine its taxability, consult "Are payments I receive for being unemployed taxable?"
Paying Taxes on Unemployment Compensation
If you receive unemployment benefits, you have two options to manage tax obligations:
You may opt for federal income tax withholding from your benefits using Form W-4V, Voluntary Withholding Request.
You might need to make quarterly estimated tax payments.
Reporting Unemployment Compensation
Recipients of unemployment compensation should receive Form 1099-G, Certain Government Payments, detailing the total benefits received (Box 1) and any federal income tax withheld (Box 4). Report the amount from Box 1 on line 7 of Schedule 1 (Form 1040) and attach it to your Form 1040 or Form 1040-SR. If tax was withheld, include the amount from Box 4 on line 25b of Form 1040 or Form 1040-SR. For additional details, refer to Publication 525: Taxable and Nontaxable Income.
Unemployment Fraud
Fraudsters often use stolen identities to claim unemployment benefits. When this happens, state unemployment agencies issue Forms 1099-G to the victims and the IRS, reporting fraudulent payments. If you receive a Form 1099-G with incorrect unemployment amounts, report the error to your state agency and request a corrected form.
For guidance on reporting fraud and protecting your identity, visit the Department of Labor website. The IRS also provides tax assistance for fraud victims at Identity Theft and Unemployment Benefits.