Reporting Unemployment
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Taxes and Your Job
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Updated for COVID-19 Relief Provisions
If you lose your job or get laid off, you may be able to get unemployment benefits. The payments are a welcome relief, and though they are usually taxable and need to be reported on your tax return, COVID-19 relief legislation has retroactively made unemployment benefits in 2020 tax-free up to $10,200 for taxpayers making less than $150,000 per year.
Since many have already filed their 2020 tax returns, anyone who has already filed will likely need to file an amended tax return to get taxes paid on unemployment benefits back—that is, unless the IRS figures out a way to adjust returns that have already been filed. The IRS urges filers to wait before amending a tax return until further guidance, which should be released by sometime in April 2021.
Heads Up: Your state may not conform to the $10,200 federal unemployment exclusion. Some states will likely continue to tax all unemployment compensation, so it’s important to understand how your state will handle this mid-season change—check your state’s revenue agency website for more information, and when you file your taxes, review your state return to ensure it treats unemployment income accordingly.
You should get a Form 1099-G – Certain Government Payments, showing the amount paid to you and the amount of any taxes withheld. When you do your taxes with 1040.com, our interview will help you find the right screen to fill out.
Include benefits paid to you from regular union dues when you file. But different rules may apply if you contribute to a special union fund and those contributions are not deductible. In that case, only include as income any amount you get that is more than the contributions you made.
You can choose to have federal income tax withheld from unemployment benefits, to avoid possibly owing when you do your taxes. Use Form W-4V, Voluntary Withholding Request to set up withholding on your benefits through your state unemployment office.
While unemployment benefits are taxable, they are not considered earned income, so they don’t qualify for the Earned Income Tax Credit. You have to have received wages sometime during the year to qualify.
See also: Tax Help After a Layoff
