Are unemployment benefits taxable? Form 1099-G

Yes, unemployment is taxed federally

Unemployment benefits count as income for federal tax and go on your return, on Schedule 1. They are not subject to Social Security and Medicare tax, but they are subject to income tax.

Each state decides whether to tax them under its own income tax, so the answer on your state return may differ.

How to read your 1099-G

• Box 1: the total unemployment benefits paid to you during the year.
• Box 2: a state or local income tax refund, credit or offset, if you received one (see below).
• Box 4: the federal income tax already withheld. It is subtracted from what you owe when you file.
• Boxes 10 and 11: the state and any state income tax withheld.

Having tax withheld

Withholding on unemployment is voluntary. If you ask for it on Form W-4V or through your state's system, a flat 10% of each payment is withheld for federal tax.

If you did not ask for withholding, you may owe tax when you file. To avoid a surprise, you can request it while you collect benefits or set aside part of each payment.

State tax refunds on the 1099-G

The same form is used to report a state or local income tax refund. That refund is not always subject to federal tax: if you took the standard deduction last year, it is usually not taxed. It can be taxed if you itemized last year and deducted the state taxes that were later refunded.

If your 1099-G is wrong or you never applied for unemployment

If the amount does not match what you received, ask the state agency that sent the form for a corrected 1099-G. If you got a 1099-G for benefits you never applied for, someone may have used your identity: report it to that state agency and ask for a correction.

According to the IRS, you should report only the benefits you actually received, and you do not have to wait for the corrected form to file. Keep the letters and case numbers the state gives you.

How Vordana Tax handles it

With Vordana Tax you can type in the boxes of your 1099-G, or upload a photo or PDF of the form to fill them in and then check them. The software reports the benefits on Schedule 1, adds the box 4 withholding to your payments. A state tax refund is entered on its own page, where the software asks whether you itemized last year to decide whether it is taxable. Your federal return is e-filed with the IRS; your state return is printed and mailed.

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