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Paying Taxes On Income From Unemployment Insurance

Updated : August 4th, 2020

As most of you reading this would be aware, voluntarily unemployed citizens in the U.S are eligible for a weekly monetary compensation for up to 26 weeks from the system that is jointly run by the state-federal setup, commonly known as Unemployment Compensation or Unemployment Insurance. Ascertained on your income in the preceding 5 calendar quarters, the weekly compensation is largely a part of your highest earnings in a particular quarter and disbursed to help you manage basics of life until you find a job and start your regular earnings again.

As a part of our ongoing educational series aimed at helping you understand the basics of Unemployment, we intend to cover one of the most common concerns of the claimants, the implication of tax on the unemployment compensation received from the state.

Is Unemployment Insurance Taxable?

Perhaps, one of the most commonly searched keywords on various online search engines that includes Google. The bottom line, Unemployment Compensation is considered as taxable income since it has a monetary face to it.  It not only includes the regular state-provided benefits but also federal or state-initiated extended benefits(subject to availability). Therefore, if you’re a recipient of the dole, you should be looking forward to paying taxes on the options below.

  • Withholding Income Tax From Unemployment Compensation
  • Reporting The Income When You File State/Federal Tax Returns

Let’s throw more light on each of the options above with a view to understanding how they work.

Filing Tax Returns

Withholding Tax From Unemployment Insurance Before Disbursal

As a recipient of weekly unemployment benefits from the system, if you want to save yourself from the hassles of including unemployment income when you file for the previous assessment year, you can choose to have it taxed at the source before it credits your bank account. This is similar to withholding payroll taxes from your salary from former paychecks. If you wish to have the applicable taxes withheld, submit form W-4V to the unemployment office to receive monies after tax deduction.

Reporting Unemployment Income At The Time of Filing

At the time of filing annual tax returns, you would also need to include income from unemployment in the ambit. For this purpose, the state where your compensation originates will provide Form 1099-G, which is a detailed statement that depicts the total compensation received during a specific period. This form can be used as an authentic paperwork to show the earnings from the system while being unemployed. Do read more the income tax related laws in your state to understand the tax slabs and other breakup associated with it. Some states make it mandatory to pay an estimated tax on a quarterly basis for the compensation received.

If you choose not to do any of the above to report your earnings from unemployment to the IRS, you may be penalized on the basis of the underpaid amount for each quarter as per the provisions.

Tax Implication on Supplemental Unemployment Benefits

While we underlined some key aspects of tax implication on income from unemployment insurance directly from the state, the points below will highlight taxes on compensation received from other sources.

  • People who receive supplemental unemployment benefits from funds promulgated by the employer are not considered since they are taxable under various other sections and should be reported on Form W-2(Wage & Tax Statement).
  • Unemployment benefits from private funds where voluntary contribution is made is taxable only if the total compensation received exceeds total payments made by the recipient into the fund.

How Do I Get A Copy of 1099-G?

By default, all states are required to provide a copy of the 1099-G for your reference either at the end of the compensation period or as per the prescribed timelines that act like a consolidated statement to help you file for tax returns. Depending on the state where your claim is based, you will receive the statement either by post or by via email. Some states even let you download this form from their official website after verifying personal credentials.

If you’ve not received the 1099-G as per the timelines, call the claims center of the Unemployment Office in your state for further details.  

If you have any further questions pertaining to payment of taxes towards income from unemployment compensation, get in touch with us by using accessing the Q & A section, link to which is provided below.

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  1. If I’m laid off and I go back to work for three or four weeks and get laid off again do I have to do the one week waiting period before I can collect again?

  2. I was informed by the automated phone system that my claim for last week 06/12/2021 was not processed due to an outstanding issue on said claim. I have tried for four days to reach a human to assist me in this matter. It’s been impossible! Please help.

    1. Anne,

      Wish we could do something for you. This is a private forum. Please continue following up regularly. You can perhaps write them an email.

  3. I am trying to request payments from aug 2015 up until 2017 I never received a debit card and just assumed that I was denied. So i did not request payment but would like to now

    1. Katrina,

      That period is past and you might not be able to claim retroactively. Please write the office an email if you wish to.

  4. Ive provided documents that were needed and i have not receive any type of response i have went without benefits for 6 weeks could someone please contact me

    1. Sondra,

      Please note this is a private forum and we do not have access to your claim. Please follow up with the office directly.

  5. To whom it may concern, Please what is wrong with the site to claim weeks? I am at the Career Source and they said it has been acting up for 2 days. I am frustrated so I can imagine how many others are like me. I was laid off 4/16/2021. My UI is showing active but still under review. Is there anything you need from me to get this going? I will give it to you. Please July rent coming up. I am tapped from asking from family to get me thru now. Please please please any answers for me? I am begging right now. I can not be late on rent or they will not renew my lease when it is time. I can not move, to costly. I have been here for 20 years. Please any suggestions. I will pay back July rent if my UI goes thru. No reason why it shouldn’t. Please help. Thanks again, Kay

    1. Kay,

      It must be a tough time for you. This is a private forum and we do not have access to your claim. Please chase the Office directly.

  6. I just filed for my first weeks benefit and am trying to change the payment method. It does not give me the verify who you are questions?

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