Do You Know Unemployment Benefits Are Taxable?

Do You Know Unemployment Benefits Are Taxable?

  • Find out how the CARES Act impacted unemployment benefits.
  • Learn more about both federal and state taxes on unemployment benefits.
  • Find out if your state taxes unemployment benefits.
  • Learn other factors that will affect the taxation of your benefits.

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 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, so Fiducial has some information you should know.

Those who received these 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 benefits received and the amount of tax withheld, if any.

Do You Know Unemployment Benefits Are Taxable?

Does your state tax unemployment benefits?

There are several states where these benefits are not taxable. Seven states do not have a state income tax, so obviously, 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

How will my benefits impact my tax bill?

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 unemployment received, what other income you have, whether you are single or married (and, if married, whether you and your spouse are both receiving benefits), and whether you had or are having income tax withheld from benefit payments.

Do you have questions about the taxation of unemployment compensation? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!

For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.