Can I File Income Tax Return If I Am Receiving Unemployment?

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Unemployment benefits are a financial life preserver if you lose your job and can help you keep things together until you find new work. Receiving unemployment compensation doesn’t block you from filing a tax return. In fact, these benefits may add to your total income for tax purposes. This means benefits might make it necessary for you to file a tax return with the Internal Revenue Service.

Taxes and Unemployment

You can file an income tax return each year regardless of the source or amount of your income. The IRS even accepts returns with no income reported that are submitted solely to create a legal record or to claim a refund. Unemployment benefits are usually counted as income by the IRS, so you must add benefits to your gross income for tax purposes. You have to file when the benefit amount is large enough.

Taxability of Unemployment Benefits

Typically, people getting unemployment compensation receive a weekly check through a state agency with the funds coming from state or federal unemployment programs. These benefits are fully taxable and must be reported on your income tax return. Some companies provide unemployment payments to employees thrown out of work, and these are also fully taxable. Private unemployment compensation, such as that provided by some unions, is funded by worker contributions. If you receive unemployment benefits from a plan to which you made contributions, only payments in excess of the amount you contributed are taxable income.

Reporting Unemployment Income

Income and filing status determine if you must file a tax return when you get unemployment benefits. To decide if you must file, add up all of your income, including the unemployment benefits. As of the time of publication, if the total is $10,000 or more and your filing status is single, you have to send in a return. If you are married and file a joint return, the threshold is $20,000. Dependents usually have a limit of $6,100 and married people filing separate returns a limit of $3,900.

Tax Payment Options

If you expect to owe the IRS $1,000 or more when you file your yearly tax return, you are supposed to file estimated tax returns and pay the anticipated taxes periodically during the year. This can easily happen if you get unemployment benefits. However, you have the option of asking for income taxes to be deducted from your weekly benefit checks. Having taxes withheld from unemployment benefits can eliminate the need for estimated tax filing and prevent a large tax liability from building up.