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How to file your taxes if you received unemployment benefits

If you received unemployment benefits, you'll owe income taxes on those benefits.
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Written by Trent Hamm, Contributing Writer on

When tax season approaches, many Americans will face the prospect of filing their income taxes. For millions of people, this will include their unemployment benefits. 

Knowing how to file correctly will help you avoid a lot of trouble with the IRS. Let's take a look.

Do you owe taxes on unemployment benefits?

Yes, unemployment checks are taxable income. If you received unemployment benefits in 2021, you will owe income taxes on that amount. Your benefits may even raise you into a higher income tax bracket, though you shouldn't worry too much about getting into a higher tax bracket.

People who file for unemployment have the option to have income taxes withheld from their unemployment checks, and many do. If you elected to do this, you have little to worry about.

What if you didn't choose to have income taxes withheld from your unemployment checks? Don't panic. If you were employed during much of the year, you may simply see a reduced tax return or a very small tax bill when you file.

How to file taxes after receiving unemployment benefits

How can you figure out how much you owe after receiving unemployment benefits? The solution is to prepare your taxes for filing as early as possible so that you can estimate what your tax bill will be.

If you received unemployment compensation, you should receive Form 1099-G from your state. This shows the amount you were paid and any federal income tax you chose to have withheld.

First, if you're filing by using tax software or using a tax preparation service, it's easy. The software package will ask you if you received unemployment benefits this year, and if you say yes, it will ask you for numbers directly from your 1099-G form. Your tax preparer will ask you for a copy of your 1099-G. In either case, this is easily handled.

  1. You'll fill out Form 1040 (your main income tax form) as usual, following the provided instructions.
  2. You will also have to fill out Schedule 1, which provides details on additional income like your unemployment income.
  3. You simply enter your unemployment compensation on line 7 of Schedule 1, and you find that number on Box 1 of your 1099-G form that you received in the mail.
  4. Finish filling out Schedule 1.
  5. Then, when you finish filling out your 1040, you take the number on line 22 of Schedule 1 and put that number on line 10a of your 1040. Then, just finish filling out your 1040 as normal.

What if you had tax withheld from your unemployment check?

  1. The amount of tax that has been withheld for you appears on box 4 on your 1099-G form.
  2. You simply put that number on line 25-b of your 1040 form, and continue filling out your 1040 as normal.

If you have to pay state income taxes in your state, you'll follow similar steps for your state income tax forms.

What to do if you owe taxes on unemployment benefits

After going through these steps, you may find that you owe taxes to the IRS. If you do, don't panic. You have options.

However, not paying that tax bill is not one of those options. You should make every effort to pay as much of your tax bill as possible. Not paying your tax bill means that you'll immediately face additional penalties for late payment, as well as interest that accrues on your unpaid taxes. If you continue to not file your taxes, the IRS may seek legal remedy against you.

Start saving as soon as possible

If the bill isn't too big, you may be able to simply save up enough money before the April 18 due date to pay the bill. The most efficient way of doing this is to set up a savings plan for yourself where you automatically put aside a small amount each week from your checking to your savings account.

Talk to the IRS and set up a payment plan

If the amount seems impossible for you to cover, contact the IRS directly. Despite its reputation, the IRS actually works with individual taxpayers who are having difficulty paying their taxes. It offers extensions, waive fees, and sometimes even compromise in difficult situations.

Start by calling the IRS at 1–800–829–1040. Try to avoid doing this too close to the filing deadline of April 18, as the IRS tends to get very busy around that date. Call as early as possible. Discuss your situation with them and ask what options are available.

[This article originally appeared on The Simple Dollar in January, 2021. It was updated in Decamber, 2021.]

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