Yes, you can get a tax refund from unemployment, but only if taxes were withheld from your payments

When you receive unemployment benefits, you have the option to have federal income tax withheld from each payment. If you chose withholding and paid more tax than you owed for the year, you will receive a refund just like you would from any other income. The refund comes through your regular tax return, not from the unemployment office.

The key word is option. Unemployment is taxable income, but withholding is not automatic. When you first file for benefits, you are asked whether you want taxes taken out. Many people say no to keep more money in their pocket each week. If you did not have taxes withheld, you cannot get a refund from unemployment — but you may owe taxes instead when you file your return.

Key Takeaways

  • You can only get a tax refund from unemployment if you chose to have federal income tax withheld when you filed your claim.
  • Withholding is optional, and many people decline it to receive their full benefit amount each week.
  • If you did not withhold and owe taxes on unemployment income, you will owe that amount when you file your return — there is no refund.
  • You report unemployment income on your tax return using the 1099-G form your state sends you, and any refund is calculated as part of your overall return.
  • If you withheld too much, the refund appears on your tax return; if you withheld too little, you may owe additional tax.

How withholding works when you receive unemployment

When you file your initial claim for unemployment benefits, your state's unemployment office asks you to choose a federal tax withholding rate. The standard rate is 10 percent of your weekly benefit amount. If you select withholding, that amount is deducted from each payment before you receive it.

For example, if your weekly benefit is $400 and you choose withholding, you receive $360 that week and $40 goes to federal taxes. Over 26 weeks of benefits, that adds up to $1,040 in withheld taxes. Whether that $1,040 results in a refund depends on your total income and tax situation for the year.

You can change your withholding choice after you have started receiving benefits. Most states allow you to adjust it through your online account or by contacting the unemployment office. If you realize mid-year that you should have withheld taxes, you can usually switch on. If you withheld and want to stop, you can switch off — though this means you may owe taxes when you file your return.

When you will get a refund versus owing taxes

A refund happens only when you have paid more in total taxes (from all sources) than you actually owe. Unemployment income is added to any other income you had that year — wages, self-employment income, interest, or anything else taxable.

If you withheld $1,040 from unemployment but your total tax liability for the year is only $800, you will receive a $240 refund. If you withheld $1,040 and your total liability is $1,200, you will owe an additional $160 when you file. If you did not withhold at all and your liability is $1,200, you will owe the full $1,200.

The amount you owe or receive as a refund is determined when you file your tax return. Your state sends you a 1099-G form by January 31 that shows the total unemployment benefits you received and the total federal tax withheld. You use this form to report the income on your federal return.

What to do if you did not withhold and now owe taxes

If you chose not to withhold taxes from your unemployment and you now owe money when you file your return, you have options. You can pay the full amount due, or if you cannot, you can set up a payment plan with the IRS.

The IRS offers short-term payment plans (up to 180 days) at no cost, and longer-term installment agreements that charge a setup fee and interest. You can request a plan through the IRS website, by phone, or when you file your return. The sooner you contact them, the more options you have.

If your unemployment was your only income and you earned below a certain threshold, you may not owe federal tax at all, even without withholding. The threshold depends on your age and filing status. A tax professional or free tax preparation service can tell you whether you have a filing requirement.

How to report unemployment on your tax return

When you file your federal tax return, you report unemployment benefits on Form 1040, line 19b. You will need the 1099-G your state sent you, which shows the gross unemployment amount and the federal tax withheld.

If you use tax software, it will walk you through entering this information. If you file by hand or with a tax professional, they will use the 1099-G to fill in the correct lines. The software or professional will then calculate whether you are owed a refund or owe additional tax based on your total income and situation.

Make sure the 1099-G matches the total benefits you actually received. If there is a discrepancy, contact your state's unemployment office to request a corrected form before you file.

State taxes and unemployment refunds

Some states also tax unemployment benefits, and some do not. The states that do tax unemployment usually allow you to withhold state tax as well when you file your claim. If you live in a state that taxes unemployment and you did not withhold, you may owe state tax in addition to federal tax.

A few states — including Illinois, Mississippi, and New Jersey — do not tax unemployment benefits at all. If you live in one of these states, you only deal with federal tax. You can check your state's unemployment office website to see whether your state taxes benefits.

State tax refunds are handled separately from federal refunds. You report state unemployment on your state tax return using the same 1099-G form, and any state refund or amount owed is calculated as part of that return.

Frequently Asked Questions

Can I change my withholding after I have already received benefits?

Yes. Most states let you adjust your federal withholding through your online unemployment account or by calling the office. If you want to start withholding, you can usually do so when ready. If you want to stop withholding, the change typically takes effect on your next payment.

What if I did not receive a 1099-G by the end of January?

Contact your state's unemployment office and request the form. You can usually request it online or by phone. If you file your return before the form arrives, you can file an amended return once you have it. Do not guess at the amount — use the official 1099-G.

If I owe taxes on unemployment, can I set up a payment plan?

Yes. The IRS offers payment plans for any amount owed. You can set one up through the IRS website, by phone at 1-800-829-1040, or when you file your return. Short-term plans (under 180 days) are free; longer plans charge a setup fee and interest.

Do I have to file a tax return if my only income was unemployment?

It depends on the amount and your age and filing status. The IRS sets a threshold each year below which you do not have to file. A tax professional or free tax preparation service can tell you whether you must file. Even if you are not required to, filing may result in a refund if you had taxes withheld.

What happens if the 1099-G shows the wrong amount of withholding?

Request a corrected 1099-G from your state's unemployment office. Explain the discrepancy and provide any documentation you have of your actual payments. Once you receive the corrected form, use it to file your return or file an amended return if you have already filed.