Unemployment and Taxes

Since March 2020, nearly 36.5 million Americans have filed for unemployment.  While some have returned to the workforce, millions remain dependent on unemployment compensation. Additionally, those receiving unemployment benefits due to the coronavirus pandemic are receiving a boosted payout.  While the income is surely necessary, we need to be mindful that this income is taxable. 

State Taxes

If you qualify for unemployment benefits through your state you may be subject to taxation of that income.  State taxation of unemployment benefits varies.  If you live 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.  Kiplinger has an easy to view and comprehend state tax map. Scroll to find your state and see if your state taxes unemployment income. 

five stacks of gold coins sitting on top of dollar bills of various denominations. Red tiles lay on dollars spelling out the word, tax.
Most states charge a tax on unemployment compensation

Federal Taxes

Under the CARES Act, any eligible unemployed person will receive both regular unemployment benefits from their state and an additional $600 a week from the federal government. This boost in pay is set for the duration of April 5, 2020 to July 31, 2020.  This income will be subject to taxation. Early, 2021 you will receive Form 1099 G (Certain Government Payments).  You use this form to fill out your tax return to make sure you paid the right amount of taxes.  

Red, white and blue buttons that have stars at the top and reads, CARES Act
CARES Act provides for extra unemployment compensation

How to Pay the Taxes

You are not required to have taxes withheld from your unemployment benefits check.  Financial experts say it is a good idea to take the taxes out up front.  If you elect to have your taxes automatically taken from your unemployment benefit income you will need to fill out form W-4V.  Depending on your state, this may be something you can do online through the benefits portal. The other option is to make quarterly payments directly to the IRS for the amount you estimate you’ll owe.  

files and a book on income tax lay on a table that contains a calculator and pens.
Financial experts recommend paying unemployment taxes up front
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