Filing Taxes When You Are Unemployed

Unemployed Tax Filing Questions

If you are receiving unemployment compensation, it’s important to understand how it can affect your taxes. You may still be required to file a tax return even if you are not earning income, and you may qualify for certain tax breaks as well. With a record number of taxpayers receiving unemployment compensation due to COVID-19, we want to address these frequently asked unemployment tax questions. 

Do I have to file taxes if I’m unemployed?

This really depends on how much total income you earned during the year. The IRS says you must file if you are under age 65, your status is single, and you received over $12,400 in income. If you are married filing jointly, you’ll need to file if your combined income was greater than $24,800.  

If you don’t have any taxable income to report when you file, chances are your return will be rejected by the IRS. Learn more about this. 

Do I have to pay taxes on unemployment?

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 amount required to file, some of it could be taxed.

If you received unemployment benefits in 2020 and your AGI is less than $150,000 (for single and married filers), the first $10,200 you received for unemployment will be exempt from tax. Read this article for more details about this one-time exemption.

To make sure you aren’t surprised with a tax bill when you file, 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. Use the Tax Witholding Estimator to calculate what you’ll need to have withheld. 

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. The amount of credit you can receive depends on your filing status, total income, and how many qualifying children you have. For tax year 2020 (taxes filed in 2021), you can receive up to $6,660.    

If you are paying for childcare while you look for work, you could receive a tax credit to offset those costs. The amount you can claim for the Child and Dependent Care Credit depends on your income, but it can be worth up to 35% of your childcare expenses.   

For the EITC and the childcare 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? If so, you could actually be self-employed for tax purposes. To learn more, readDifferent Types of Self-Employment. 

Will I have to pay taxes if I file a tax return?

Filing your return does not mean that you will owe taxes. It does let the IRS know about your annual income, your life situation, and any deductions and credits you qualify for. That is why you must file a tax return to receive an 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 withholding you had from your job were probably too high, which could mean a bigger refund for you. 

This article is up to date for tax year 2020 (returns filed in 2021). 

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