Unemployment Income and State Tax Returns
Grey Owl by Zdenek Machácek
Unemployment compensation is taxable income which needs to be reported by filing an income tax return. You should receive a 1099-G reporting the unemployment compensation you received during the year to be reported on your income tax return via Form 1040. Enter the figures from your form on the eFile platform and the Tax App will calculate the taxes owed on it based on your entries - start free.
Note: Read the important the Jan. 6, 2023 IRS update about the 2020 Unemployment Compensation Exclusion that could result in a tax refund from the IRS.
How to Report Unemployment Compensation
After enrolling in and receiving unemployment benefits during the year, you may have withheld federal and potential state tax based on how your state taxes unemployment income. The map below shows which states tax or don't tax unemployment income. When you prepare your return on eFile.com, you can enter your unemployment information from Form 1099-G and the eFile platform will report it on your return and generate a state return if you state taxes this income. Unemployment income is generally reported on Schedule 1 and again on the federal Form 1040 - eFileIT these forms. When you add your state figures from your statement tax forms, the state forms are automatically generated with your unemployment income and other tax information.
See also: Which states tax retirement income?
You may owe additional tax if you did not withhold enough on your unemployment income or you may be owed a tax refund if you withheld too much for both federal and state. Refer to the table below on whether your state taxes unemployment income or not.
For your W-2 income from employment, you may be familiar with withholding via Form W-4. If you are not tax balanced - you may receive a large refund or may owe a lot of tax at the end of the year - use the free eFile.com W-4 tools and TAXercise your paycheck now. When you file your taxes for a year you received both unemployment income and income from work (from an employer, self-employment, etc.), then you need to add all of this income to one return for the tax year.
States, Taxes, and Unemployment Income
Unemployment benefits are subject to IRS income taxes. The table below shows state income taxes and unemployment organized by the following:
Weeks: The maximum number of weeks the state will pay unemployment benefits within a tax year.
Benefit: The maximum dollar amount per week paid by the state in unemployment benefits.
Max.: The maximum dollar amount per tax year paid by the state in unemployment benefits.
State Taxes: Indicates if the unemployment benefits are subject to state income taxes for the given tax year. UCE = Unemployment Compensation Exclusion; NA = Not applicable; No = UCE does not apply; Yes = UCE does apply. See details on the 2020 UCE below the table.
The following information is for 2020 Returns - there was not any similar program established for unemployment received in 2021 and the Unemployment Compensation Exclusion (UCE) does not apply. However, the details on where unemployment benefits are taxed are still applicable for 2021 Returns.
See important Unemployment Compensation Exclusion UCE updates from March of 2022.
Below is an overview on whether individual states recognize the IRS unemployment income compensation tax exclusion (UCE) for 2020 Tax Returns or not. It also shows which states do not tax unemployment income.
Unemployment income or benefits have gone through extensive regulatory changes during 2020 and 2021. Not only was the enhanced unemployment benefits period extended, the rules on unemployment income taxation also changed as a result of the American Rescue Plan Act (ARPA) or stimulus three legislation of March 14, 2021. These enhanced benefits have been part of different programs called the Pandemic Unemployment Assistance, Pandemic Emergency Unemployment Compensation, and Federal Pandemic Unemployment Compensation. Unemployment benefit payments were extended from September 6, 2020 to March 14, 2021, and then until September 6, 2021, which adds up to approximately 53 weeks. The unemployment benefits have increased by $300 per week as a result of the December 2020 second stimulus payment package.
If you reported 2020 unemployment income on your e-Filed 2020 IRS and state income tax returns on or before March 15, 2021, you do NOT have to file an IRS tax amendment as a result. However, since this adjustment might change your 2020 IRS AGI, you might have to amend your state tax return(s). Many states however did require amendments; read below on how individual states will adjust to the ARPA.
The IRS announced on March 31, 2021 that the funds will be refunded by the IRS during the spring and summer of 2021 to taxpayers who filed their tax return reporting unemployment compensation on or before March 15, 2021. There was never a payment status or lookup tool; if you never received this refund that you were entitled to, contact the IRS as it may be waiting for you.
TurboTax® is a registered trademark of Intuit, Inc.
H&R Block® is a registered trademark of HRB Innovations, Inc.