Tax Treatment of Unemployment Benefits

Unemployment compensation benefits are considered taxable income. However, the American Rescue Plan Act of 2021 contained a one-time exclusion of $10,200 ($20,400 for married couple) for individuals and families with modified adjusted gross income of $150,000 or less. Amounts above $10,200 ($20,400 for a married couple) should still be included as taxable income.

Already filed a tax return?

If you already filed a tax return that includes the full amount of your unemployment benefits, the IRS will automatically determine the correct taxable amount of unemployment compensation and tax. If too much tax was paid the IRS will either refund the overpayment or apply it to other outstanding taxes owed. The first refunds are expected to be made starting in May and will continue throughout the summer. There is no need to call the IRS or file a Form 1040-X, amended return. See  IRS to recalculate taxes on unemployment benefits; refunds to start in May  for guidance.

Preparing your tax return now?

If you are preparing you own tax return, you must determine whether you are within the $150,000 modified adjusted gross income threshold for eligibility. To make this calculation you should subtract all unemployment benefits received, even amounts above $10,200 per person. Tax software products and tax professionals can assist in making this calculation. See New Exclusion of up to $10,200 of Unemployment Compensation for guidance.

Victim of unemployment fraud?

Criminals using previously stolen identities filed claims for unemployment benefits in other people's names. Because unemployment benefits are taxable, states submit a Form 1099-G to individuals and to the IRS. Victims of fraud who receive Forms 1099-G with inaccurate amounts of unemployment benefits in Box 1 should notify the state for a corrected Form 1099-G. The Department of Labor details how to report fraud and protect yourself

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