Unemployment Benefits are Taxable Income
Unemployment benefits are taxable income and must be reported on your federal income tax return. With millions of people receiving unemployment compensation in 2020 due to the pandemic, many people may wind up with smaller refunds or even taxes owed if taxes were not withheld from their unemployment benefits.
Taxpayers can have tax withheld from their benefits. This will help them to avoid owing taxes on this income when they file their federal income tax return next year. Withholding taxes from unemployment benefits is voluntary.
Taxpayers who receive unemployment benefits will receive Form 1099-G. This form shows how much was paid to the taxpayer during the year (box 1) and how much money was withheld for federal income tax (box 4).