The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits.
“Unemployment compensation” includes amounts received under the laws of the United States or of a state. It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It also includes railroad unemployment compensation benefits, disability benefits paid as a substitute for unemployment compensation, trade readjustment allowances under the Trade Act of 1974, and unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974.
If you received unemployment compensation during the year, you must include it in gross income. Report the amount on line 19 of Form 1040 (PDF), line 13 of Form 1040A (PDF), or line 3 of Form 1040EZ (PDF). You may be required to make quarterly estimated tax payments. However, you can choose to have federal income tax withheld. For more information, refer to Form W-4V (PDF), Voluntary Withholding Request. You should receive a Form 1099-G (PDF), Certain Government Payments showing the amount you were paid and federal income tax withheld.
Unemployment compensation does not include workers’ compensation payments. See Publication 525, Taxable and Nontaxable Income, for information on these payments.
Supplemental unemployment benefits received from a company financed fund are not considered unemployment compensation for federal tax purposes. These benefits are wages subject to income tax withholding. They may be subject to social security and Medicare taxes as well. Supplemental unemployment benefits should be reported to you on Form W-2 (PDF), Wage and Tax Statement. For more information about supplemental unemployment benefits, see Publication 15-A (PDF), Employer’s Supplemental Tax Guide, section 5.
Unemployment benefits from a private fund (or, in some cases, public fund) to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. This taxable amount is not unemployment compensation; it is reported as “Other income” on Form 1040 (PDF).
For more information, see Unemployment Benefits in Publication 525.
Source: Internal Revenue Service
Last reviewed: September 20, 2013