Whether you were unemployed for part of the year or the entire year, the IRS considers unemployment compensation as earned income. At tax time, you’re responsible for reporting and paying taxes on the unemployment benefits the same as you would for wages earned from a job. So, in most cases, if you are unemployed you do file for taxes.
You can elect to have federal income tax withheld from your weekly unemployment benefits to reduce your tax bill for the year.
Be Aware of Exceptions
The government doesn't automatically withhold taxes from your unemployment income. You have to elect to have a percentage withheld from each weekly check or deposit. Additionally, there are no unemployment tax deductions per se. However, if you choose to itemize deductions on your 2017 federal tax return, you may be able to deduct expenses related to your search for a new job.
When filing your tax return, include state unemployment insurance benefits in your gross income. Since unemployment benefits are less than your normal wages, the reduction in your income could put you in a lower tax bracket.
2018 Breaks for Unemployed Gone
Starting with the 2018 tax year, job search expenses are no longer deductible. These were the only tax breaks for unemployed persons. The threshold for itemizing deductions is also a lot higher, nearly twice what it was in 2017. For it to make sense to itemize at all, your deductions have to exceed the standard deduction that everyone gets. Standard deductions for 2018 are $12,000 if you’re single, $18,000 if you’re a single head of household and $24,000 if you’re married and filing jointly.
2017 Job Search Deductions
Tax year 2017 is your last chance to deduct job search expenses. Some of these expenses may be deductible even if you didn’t get a new job. They include resume preparation, printing and mailing costs, mileage, and phone and computer expenses. Food and lodging for out-of-town job hunting trips may be deductible too. To take these deductions, you have to have been looking for a job in the same occupation. Uncle Sam does not support career changes.
Job search expenses are reported on Line 28 of Schedule A as Other Miscellaneous Deductions. Most miscellaneous deductions are subject to the IRS’s 2 percent rule. Only the portion of miscellaneous expenses that exceeds 2 percent of your adjusted gross income is deductible.
Get Your Forms Straight
Your state’s Department of Labor and Employment will mail you a Form 1099G for the unemployment benefits you received during the year. The form shows the total amount of benefits you were paid in box 1. Unemployment compensation includes Railroad Retirement Board payments. If you requested voluntary federal withholding the amount that was withheld is shown on Form 1099G. You may also choose to have state income tax withheld if your state taxes unemployment benefits.
Although no tax is automatically withheld from unemployment benefits, you can request that 10 percent be withheld for federal income taxes. To do this, fill out a Form W-4V to request voluntary withholding and submit it to your state’s unemployment office. You can submit another Form W-4V if you change your mind.
- PriorTax.com: Do You Have to Pay Taxes If You Are Unemployed?
- TurboTax: Are Unemployment Benefits Taxable?
- IRS.gov: Instructions for Form 1099-G
- IRS.gov: Form W-4V
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- Intuit TurboTax: What is the 2% rule?
- IRS.gov: About Schedule A (Form 1040), Itemized Deductions
- Comstock/Comstock/Getty Images
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- IRS 1040A Instructions
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- Can Self Employed People Get Unemployment Benefits?
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