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Unemployment benefits can help cushion the blow when you lose your job. But if you received unemployment compensation in 2022, you may be in for a surprise when you prepare your tax return. That’s because you could owe taxes on your jobless benefits.
How Are Unemployment Benefits Taxed?
Let’s back up: Is unemployment taxable? Unfortunately, the answer is yes — and that can seem like Uncle Sam kicking you when you’re already down.
If you received unemployment compensation in the past, that may come as a surprise. Back in 2021, the American Rescue Plan provided a small measure of relief for people who received benefits in 2020 at the peak of the COVID-19 crisis: The first $10,200 of unemployment compensation was shielded from taxes for households with incomes under $150,000 in 2020.
But that relief measure applied only to 2020. Expect to pay ordinary income taxes on unemployment when you file your 2022 tax return (due April 18, 2023) and in future tax years.
Still, many people are surprised to learn that they have to pay taxes on their jobless benefits. A Jackson Hewitt survey found that 39% of adults weren’t aware that unemployment is taxable.
Here’s a breakdown of how taxes on unemployment benefits work.
Federal Income Taxes
When you receive unemployment benefits, they’re taxed at the federal level as ordinary income.
That means if you got $10,000 from unemployment during a typical year, it would be taxed in the same income tax brackets as it would if you’d earned $10,000 from a job. But you wouldn’t owe payroll taxes, ie, Social Security and Medicare taxes, on your benefits.
State Income Taxes
At the state level, it looks a little different. You won’t owe state taxes on your unemployment if you live in one of the following nine states that don’t have state income taxes:
- Alaska
- Florida
- Nevada
- New Hampshire (taxes dividends and interest income, but not wages or unemployment benefits)
- South Dakota
- Tennessee
- Texas
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