This article is up to date for tax year 2018 (returns filed in 2019).
Losing your job is a major life event that affects your tax situation. There are important things to understand if you are receiving unemployment compensation. You may still need to file a tax return, even if you are not earning income, and you may qualify for certain tax benefits as well. Here are the answers to four frequently asked unemployment tax questions.
Do I have to file taxes if I’m unemployed?
Your filing requirement depends on how much total income you earned during the year. The IRS says that you must file if your status is single and you earned over $12,000. If you are married filing joint, you’ll need to file if your combined income was greater than $24,000.
Filing your return does not automatically mean that you will owe taxes. But it does let the IRS know about your life situation and any deductions and credits you qualify for. That is why you must file a tax return to receive your IRS refund. It is common for people who have lost their job to move into a lower tax bracket. If that happened to you, the withholdings you had from your job are probably too high and that could mean a bigger refund for you.
Do I have to pay taxes on unemployment?
Yes, your unemployment compensation is considered taxable income by the IRS (and most states, too). If your total income for the year – including what you get for unemployment – is more than the minimum required to file, some of it could be taxed. To make sure you aren’t surprised with a tax bill when you file a return, you can have taxes withheld from your unemployment income during the year, or you can make estimated payments – it’s your choice.
To have income withheld from your unemployment compensation during the year, fill out Form W-4V, Voluntary Withholding Request.
What do I need to file unemployment taxes?
You should receive Form 1099-G from your state showing the total amount of unemployment income you need to report. If you were employed for any amount of time during the year, you will also need your W-2 from your former employer.
Are there tax breaks for unemployment?
The Earned Income Tax Credit (EITC) is one tax benefit that many people may overlook. It is intended to help taxpayers with low to moderate income, specifically. The amount of credit you can receive depends on your filing status, your total income, and how many qualifying children you have. For tax year 2018, you could receive up to $6,444.
If you are paying for child care while you look for work, you could receive a tax credit to offset those costs. The amount you can claim for the Child Care and Dependent Credit depends on your income, but it can be worth up to 35% of your child care expenses.
For the EITC and the child care credit, you must have earned income to report on your return. Your unemployment compensation does not count toward these since it is not “earned.” But if you lost your job during the year, you can still qualify based on what you earned while you were still employed.
If you have dependents under age 17, you may be able to claim the Child Tax Credit, a tax benefit worth $2,000 per child. You do not need to have earned income to qualify for this credit, but your dependents will have to meet certain requirements to be eligible. If you claim anyone over the age of 17, they may qualify for a separate dependent credit worth $500. Read more about tax breaks for families with dependents here.
Have you picked up a side gig, like driving for Uber, tutoring, or selling a product as an independent consultant? You could actually be self-employed for tax purposes. Learn more: Different Types of Self-Employment.