Tax Treatment of 2020 Unemployment Compensation

In general, all unemployment compensation is taxable in the tax year it is received. You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. See How to File for options, including IRS Free File and free tax return preparation programs.

For general information about unemployment compensation, see Are Payments I Receive for Being Unemployed Taxable? and Tax Topic No. 418 Unemployment Compensation.

Special rule for unemployment compensation received in tax year 2020 only

The American Rescue Plan Act of 2021 authorizes individual taxpayers to exclude up to $10,200 of unemployment compensation they received in tax year 2020 only. In the case of married individuals filing a joint Form 1040 or 1040-SR, this exclusion is up to $10,200 per spouse. To qualify for this exclusion, your tax year 2020 adjusted gross income (AGI) must be less than $150,000. This threshold applies to all filing statuses and it doesn't double to $300,000 if you were married and file a joint return. Any unemployment compensation in excess of $10,200 ($10,200 per spouse if married filing jointly) is taxable income that must be included on your 2020 tax return.

Already filed a tax year 2020 tax return?

In most cases, if you already filed a 2020 tax return that includes the full amount of your unemployment compensation, the IRS will automatically determine the correct taxable amount of unemployment compensation and the correct tax. If you paid more than the correct tax amount, the IRS will either refund the overpayment or apply it to other outstanding taxes owed or other debts. The IRS began performing the corrections starting in May 2021 and continues to review tax year 2020 returns and process corrections to issue any applicable refund that is due. If the exclusion of unemployment compensation now qualifies you for deductions or credits not claimed on your original return, you should file an amended return. For example, if you did not claim the Earned Income Tax Credit (EITC) on your originally filed return because your AGI was too high, and the special exclusion allowed for unemployment compensation received in tax year 2020 reduced your AGI, you should file an amended return to claim the EITC if now eligible.

Exception: If you have qualifying children and received a CP08 or CP09 notice stating you may be eligible for the Additional Child Tax Credit or Earned Income Tax Credit, you do not need to file an amended return. Instead, you can simply respond to the notice if you are eligible for the credit(s).

See Topic D: Amended Return (Form 1040-X) for more information on filing amended returns and additional exceptions to the amended return requirement.

Preparing your tax year 2020 tax return now?

You can still claim the special exclusion for unemployment compensation received in tax year 2020 if you haven't filed your 2020 tax return and your AGI is less than $150,000. Tax year 2020 returns can be filed electronically only by paid or volunteer tax return preparers. If you prepare a prior year tax return yourself, you must print, sign, and mail your return. There are various types of tax return preparers, including certified public accountants, enrolled agents, attorneys, and others who can assist you in filing your return. For more information about these and other return preparers who might be right for you, visit Need someone to prepare your tax return? on IRS.gov/filing. Instructions and an updated worksheet about the exclusion can be found in the 2020 Form 1040 and 1040-SR InstructionsPDF. These instructions can assist taxpayers who have not yet filed to prepare returns correctly.

For additional information and scenarios, see the Unemployment Compensation Exclusion FAQs.

Victim of unemployment fraud?

Criminals using stolen identities filed claims for unemployment compensation in other people's names. Because unemployment compensation is taxable, state unemployment agencies submit Forms 1099-G to individuals in whose names and Social Security numbers the unemployment compensation was paid and to the IRS. Victims of fraud who receive Forms 1099-G with inaccurate amounts of unemployment compensation in Box 1 should notify the state agencies of the inaccuracies and request corrected Forms 1099-G. The Department of Labor details how to report fraud and protect yourself.

Taxpayers should only report on their tax returns unemployment compensation they actually received in that tax year. Do not report unemployment compensation you did not receive. The IRS offers tax guidance to victims at Identity Theft and Unemployment Benefits.

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