Are My Unemployment Benefits Taxable?

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With the passage of the CARES Act stimulus package earlier this year, the federal government added $600 to the normal state weekly unemployment benefits and increased the number of benefit weeks to a total of 39.

In many cases, workers are receiving unemployment benefits for the first time in their lives, and they may not be aware that the benefits are fully taxable for federal purposes. Potentially making matters worse is that most states also tax unemployment benefits. This may come as a surprise with a potentially unpleasant outcome for many when it comes time to file their 2020 tax return next year.

Those who received unemployment benefits will be sent a Form 1099-G (Certain Government Payments) from the state that paid the benefits. This tax form shows the amount of the benefits received and the amount of tax withheld, if any.

There are several states where unemployment benefits are not taxable. Seven states do not have a state income tax, so obviously, the benefits are not taxable in those states, which are:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

Seven states have state income tax, but do not tax unemployment benefits. They include:

  • California
  • Montana
  • New Hampshire
  • New Jersey
  • Oregon
  • Pennsylvania
  • Tennessee
  • Virginia

Two states exempt 50% of amounts above $12,000 (single taxpayer) or $18,000 (married taxpayers). They are:

  • Indiana
  • Wisconsin

If you’ve collected unemployment compensation this year, your benefits’ impact on your tax bill will depend on a number of factors, including the amount of the benefits received, what other income you have, whether you are single or married (and, if married, whether you and your spouse are both receiving unemployment benefits), and whether you had or are having income tax withheld from benefit payments.

If you have questions about the taxation of unemployment compensation, please give this office a call. View our Pandemic Relief page or attend a free Zoom consultation.

For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.