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Tax liabilities of your unemployment benefit

Updated: Feb 9, 2021

This post was written by the team at Riveter. They negotiate discounts on behalf of unemployed Americans, and are free to join.

Are unemployment benefits taxable?

  • Yes. Unemployment benefits are considered income and are therefore taxable.

Are FPUC and LWA benefits taxable?

  • The Federal Pandemic Unemployment Compensation (FPUC) program provided an additional $600 weekly payment to any individual eligible for unemployment compensation and ended on July 31, 2020.

  • The Lost Wages Assistance (LWA) program began on July 26, 2020, and will provide eligible unemployment claimants a payment of $300 per week for a limited time.

  • FPUC and LWA are both taxable as income.

What about the CARES Act stimulus check?

  • The separate one-time stimulus check that Americans received as part of CARES Act is not taxable.

How much do I have to pay in taxes for Unemployment Insurance (UI)?

  • In general, UI is subject to the same tax requirements as income. However, it is not subject to “payroll taxes,” which include taxes for Social Security and Medicare.

  • The federal income tax brackets, which range from 10% to 37%, will determine how much you pay.

  • You can use a Tax Withholding Estimator to figure out how much you might owe.

Do I have to pay federal and state income taxes?

  • Everyone is required to pay federal taxes on their unemployment benefits.

  • California does not collect state income tax on unemployment benefits.

How can I pay taxes on my regular UI?

There are three ways to pay the taxes you owe on your unemployment benefits.

  1. Have your state unemployment office withhold the tax from your unemployment checks. You can elect to have a flat rate of 10% withheld from your UI when you apply for unemployment. Or, if you are already receiving unemployment and did not initially choose to have taxes withheld, you will need to fill out a Form W-4V and file it with your local unemployment office.

  2. Make quarterly estimated tax payments. If you do not have tax withheld from your benefits, this option may be required to avoid tax penalties. You might also need to make quarterly payments in addition to tax withholding to avoid a larger bill at the end of the year. If you use this option, you will have to learn how to estimate your tax payments and submit separate payments throughout the year.

  • The 3rd and 4th quarterly tax deadlines for this year are September 15, 2020 and January 15, 2021.

  1. Pay the tax in full when it is due. This might be a reasonable solution if you only received UI for a short time. However, it can lead to increased tax liability and/or a larger bill in April if you were supposed to pay tax throughout the year (either through withholding or quarterly payments) and failed to do so.

Will the 10% withholding cover the total of my income tax?

  • Unfortunately, if your federal income tax bracket is above 10%, the taxes withheld from your unemployment benefits are not likely to cover the total tax due.

  • If you would owe more than $1,000 in income taxes by the end of the calendar year, you should plan to pay quarterly taxes in addition to having income tax withheld from your UI checks.

I don’t want taxes withheld from my UI checks. How can I avoid penalties?

  • If your prior year Adjusted Gross Income was $150,000 or less, then you can avoid a penalty by paying either:

  • 90 percent of this year's income tax liability, or

  • 100 percent of your income tax liability from last year

  • If your prior year Adjusted Gross Income was greater than $150,000, then you can avoid a penalty by paying either:

  • 90 percent of this year's income tax liability, or

  • 110 percent of last year's income tax liability

How can I pay taxes on my FPUC and LWA benefits?

  • California’s Employment Development Department failed to get their system to withhold 10% from FPUC for taxes.

  • For these benefits, you will have to make quarterly estimated tax payments or pay the tax in full in April.

Is there any way I can lessen the tax burden?

  • You might want to look into the earned income tax credit (EITC). If you qualify, the EITC can provide you between $538 and $6,660 in tax credits, depending on your income and the number of dependents you have.


NEW: direct Unemployment Guru Help

We are now servicing people who have claims that have been stuck for months or those who need assistance with appeals. If you have other questions you can ask in our forum which we check periodically.

Tools & Calculators

Unemployment Gurus has tools and calculators to figure out those really confusing questions:

  • How much can I earn and still qualify for the FPUC $300 from the new stimulus?

  • Do I qualify for FED-ED?

  • How much will I get if I work?

  • What is my standard base period?

  • Do I qualify for LWA?

  • Am I eligible for UI?

Preview tools here

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