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Do You Have to Report Unemployment Benefits on Taxes?

Ade Hennis - Author
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Jan. 31 2022, Published 7:23 a.m. ET

Over 19 million unemployment claims were filed in 2021, according to the Department of Labor. All of these people will have to report the claims on their tax returns, even if they don’t owe any money to the IRS or the state they live in.

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Filing the taxes that were withheld from unemployment benefits can be a very easy process when filing online or having a tax agent file for you. All you need is a 1099-G form. Whether you’ll owe money back depends on the amount of benefits you withheld for taxes and the state you live in.

Do you have to file unemployment?

You have to file unemployment benefits because they count as federal income. There’s some confusion as to whether U.S. citizens will owe tax on unemployment after the American Rescue Plan Act saw federal income taxes waived in 2021 for the first $10,200 of unemployment benefits received in 2020.

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Unfortunately, it doesn't apply to 2021, and there are no signs that Congress will pass a similar law for 2021 benefits. So, if you didn’t withhold the appropriate amount of taxes when receiving unemployment benefits in 2021, you’ll owe the IRS money for that, especially if you withheld only a small percentage or none at all.

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Depending on the state you live in, you may owe state taxes from unemployment benefits as well. Some states don’t tax unemployment, while others provide the option to withhold the benefits. In states that don’t offer withholding options and do tax these benefits, you’ll owe money to the state. So, it’s possible that you’ll have to pay taxes on both your federal and state tax returns.

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1099-G forms have been sent out to those eligible

If you received unemployment benefits in 2021, you'll be receiving either an email or mailed version of the 1099-G form, which is used to file your unemployment benefits on your tax returns. The IRS expects that all 1099-G forms should be sent and received by citizens by early Feb. 2022.

The 1099 form will show you how much unemployment compensation you received and the taxes that were withheld. Online filing systems such as TurboTax or H&R Block allow you to input the information from the form with ease. The IRS also has its own free online tax filing software that eligible citizens can use, and many states have their own websites where you can file state taxes online for free, depending on your income.

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