Is Unemployment Taxed? How It Works

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Is unemployment taxed?
- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
How are unemployment benefits taxed?
Decide whether you want taxes withheld from your unemployment checks
- If you want to go this route, fill out IRS Form W-4V (“Voluntary Withholding Request”) and turn it in at your local unemployment office. You can only have a flat 10% withheld; you can’t customize the amount.
- You can also choose not to have taxes withheld to have more money in your pocket, but know that in January both you and the IRS will receive Form 1099-G showing how much unemployment compensation you were paid.
- If as an employee you voluntarily contributed to a private fund for unemployment benefits — this may be the case for some union members, for example — the benefits you receive likely are taxable if you get more than you put in.
- If you've already signed up to receive unemployment benefits, or are already receiving benefits and have a better sense of whether you can afford to pay taxes as you go, you can change your withholding preference by filing a new Form W-4V with your local unemployment office.
Prepare to make quarterly estimated tax payments
- To pay quarterly estimated taxes, basically, you’ll need to estimate your tax liability for the whole year and then make payments on that estimated bill over the course of the year.
- You can have tax withheld from your checks and pay estimated quarterly taxes at the same time. This combo approach might be a good idea if you think a flat 10% withholding won’t be enough to cover your tax bill later.
- If you miss a deadline to make a quarterly estimated tax payment, you can certainly "catch up" later and the IRS will gladly accept your money. But you may owe a penalty on that late payment.
You may need to file a tax return
What if I can't pay the tax bill?
- Still file your tax return on time. The IRS issues penalties for paying late, but it also issues penalties for filing late. You can help keep the penalties to a minimum by filing your tax return on time, even if you can't send any money. If you need more time to file your tax return, you can get an extension, but remember that getting an extension only gives you more time to file, not more time to pay.
- The IRS lets people pay in installments over time. Signing up for an IRS tax payment plan can let you pay your tax bill over the course of several weeks or months, and you can sign yourself up directly with the IRS. There are a few different plans to choose from, depending on how much you owe and how long you need.
Article sources
- 1. Internal Revenue Service. Publication 525 (2024), Taxable and Nontaxable Income. Accessed Jul 18, 2025.
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