Even if you're not working, you will likely be required to file a federal tax return if you received unemployment benefits. This is because the IRS considers this money taxable income. Therefore, to ensure Uncle Same gets his money, you must report this income to the IRS by filing a tax return and pay any taxes due.
Proof of Unemployment Benefits
Unemployment benefits are paid to unemployed or underemployed persons who qualify. When you receive unemployment benefits, you will receive IRS Form 1099-G after the year ends. Similar to a W-2, Form 1099-G reports the total amount of unemployment benefits you received during the year.
Unemployment Benefits Are Income
The IRS considers unemployment compensation taxable income, as well as some states. As a result, you must report this income to the IRS by filing a federal tax return. You can use Form 1099-G to confirm the total amount of money received. Your unemployment income must be listed on your tax return along with any other income you received during the year.
You Must Pay Taxes on Unemployment Income
Since unemployment benefits are income, you must pay taxes on that income. Unemployment recipients can elect to have federal and state taxes deducted from their weekly benefits. By doing so, they avoid having to pay a large tax bill at tax time. If you choose to have taxes deducted from your unemployment benefits, the total amount withheld will also be listed on your 1099-G form. You will list this amount on your tax return as well.
You Will Be Penalized for Not Filing
If you fail to file a tax return despite receiving unemployment benefits, Uncle Sam may penalize you in the form of penalty fees and interest. To avoid this, you can apply for an extension, which will give you more time to prepare and submit your tax return. However, the extension does not give you extra time to make your payment. Therefore, you must pay any taxes owed by the filing deadline. If you can't, the IRS advises taxpayers to pay as much as they can to reduce the amount of fees and penalties assessed.
- IRS: Unemployment Compensation
- Turbo Tax: Guide to Unemployment and Taxes
- IRS: Extension of Time to File Your Tax Return
- IRS. "Publication 525: Taxable and Nontaxable Income," Page 27. Accessed April 17, 2020.
- IRS. "Five Tax Tips on Unemployment Benefits." Accessed April 17, 2020.
- TurboTax. "Guide to Unemployment and Taxes." Accessed April 17, 2020.
- USA.gov. "Unemployment Help." Accessed April 17, 2020.
- CareerOneStop.org. "Learn More About Unemployment Benefits." Accessed April 17, 2020.
- IRS. "Form W-4V: Voluntary Withholding Request." Accessed April 17, 2020.
- IRS. "Topic No. 418 Unemployment Compensation." Accessed April 17, 2020.
- IRS. "Estimated Taxes." Accessed April 17, 2020.
- Center on Budget and Policy Priorities. "Introduction to Unemployment Insurance." Accessed April 17, 2020.
- IRS. "Instructions for Form 1099-G," Page 4. Accessed April 17, 2020.
Based on the West Coast, Mary Jane Freeman has been writing professionally since 1994, specializing in the topics of business and law. Freeman's work has appeared in a variety of publications, including LegalZoom, Essence, Reuters and Chicago Sun-Times. Freeman holds a Master of Science in public policy and management and Juris Doctor. Freeman is self-employed and works as a policy analyst and legal consultant.