Unemployment Benefits are Federally Taxable Income
Unemployment benefits, including UC, PEUC, FPUC, and PUA, all count as income for federal tax purposes. You will receive a 1099-G form at the end of each year that you will submit with your tax return.
However, unemployment benefits do not count as income for Pennsylvania taxes.
What if the 1099G I get is incorrect?
Some claimants may get an incorrect 1099G. Below are some common situations where this happens and what you should do in response.
I was mailed a 1099-G about Unemployment Compensation or Pandemic Unemployment Assistance, but I never applied for benefits.
If you never applied for benefits, then you are most likely the victim of identity theft, meaning someone used your identity to claim benefits, You should report the fraud to the PA Department of Labor and Industry here.
When you file your taxes, you do not have to report the income from the 1099G on your tax return. However, you do need to report the fraud to the PA Department of Labor and Industry as soon as possible.
If you later receive an IRS notice later saying that you owe more taxes because you didn’t report all your income, you should immediately contact the PA Department of Labor and Industry for a corrected 1099-G.
My 1099-G says I was paid more benefits than I actually received in 2021.
First, the 1099-G includes payments you received in 2021, even if they were delayed payments for 2020 claim weeks. Second, the 1099-G also includes FPUC, the extra $300 per week.
The IRS considers it income if the money was deposited into a bank account that you had access to, or if a check or payment card was delivered to your address and you received it.
If you still believe the amount on the form is too high, or if you had applied for benefits but never received payments in 2021, you should:
- Review the payment summary on your portal.
- If you did not receive the payments that have transaction numbers next to them, there may have been an issue with your payment method. If this is about UC, contact the UC Service Center. If this is about PUA, use this PUA only form.
My 1099G has payments on it that were recouped for an overpayment.
If the overpayment is from 2021, you need to report how much was offset from your payments on your Schedule 1, Form 1040. When you report it, use your Form 1099-G to follow these instructions from the IRS:
- Subtract the amount taken from payments from the total amount of your payments.
- Enter this number in the line 7 box.
- On the dotted line to the left of the line 7 box, write “Repaid” and the amount taken from your 2021 payments to pay the overpayment.
- The number in the line 7 box and the number you wrote on the dotted line should equal the number of the total amount of 2021 payments that is on your 1099-G.
If the overpayment is from 2020 or before, the way you report the amount taken from your payments depends on how much was taken.
- If more than $3,000 was taken from your 2021 payments, you can either:
- Claim the amount you repaid as an itemized deduction, or
- Claim a credit for the amount of tax that the repaid UC cost you in the year when you originally received it.
- Ask your tax preparer which option saves you the most money on your 2021 return.
- If $3,000 or less was taken from your 2021 payments unfortunately, the law doesn’t give you any tax relief. You will need to report the total amount of all payments, including the amount taken from your payments, as income in the line 7 box of your Schedule 1, Form 1040. But, depending upon your total income in 2021, it might not even have any effect on your 2021 taxes.
Frequently Asked Questions
Yes, you do have to report your UC benefits as earned income when you file taxes. You will get a 1099-G form in the mail that lists your income from UC, PEUC, PUC, and/or the Lost Wage Assistance program (the previous extra $300 per week).
Unfortunately, unlike in UC and PUA benefits from 2020, for UC and PUA benefits received in 2021, there is no tax break. If you received UC, PEUC, and/or PUA payments in 2021, all of those benefits are taxable income by the IRS.
Philadelphia residents can have their taxes filed for free through the Campaign for Working Families. If you are not a Philadelphia resident, you can find your nearest Volunteer Income Tax Assistance site using the IRS search tool.
There is no need to delay the filing of your 2021 return if you have not already filed.
If you filed your 2021 taxes without including your 2021 unemployment compensation income on your federal tax return, then you will need to file an amended 2021 return with you unemployment compensation income.
If you have a tax preparer, you should ask them to file an amended 2021 tax return that includes your unemployment compensation income. If you do not have a tax preparer and you live in Philadelphia, Campaign for Working Families’ can help you. If you are not a Philadelphia resident, you can find your nearest Volunteer Income Tax Assistance site using the IRS search tool.
Yes, if you select federal withholding in the UC system or the PUA system, you will have 10% of your benefits withheld each week.
This decision is entirely up to you. Remember, there is no $10,200 tax exclusion for benefits received in 2021 and 2022. Deciding to withhold your taxes depends on whether you prefer to pay the taxes now through withholding or if you want to pay the taxes later when you file your 2021 return in early 2022.
You can change your withholding preference (yes or no) in the online portal for both the UC system and the PUA system (see below). You can also call the statewide UC phone number (888-313-7284) and ask a representative to change it.
Yes, your UC benefits did count as taxable income for 2020. In early 2021 you should have received a 1099-G form in the mail that listed your income from UC, PEUC, PUC, and/or the Lost Wage Assistance program (the previous extra $300 per week).
Under the American Rescue Plan, the federal government forgave income taxes on up to $10,200 in UC benefits per person, as long as your adjusted gross income was less than $150,000. That means if you and a spouse both collected unemployment benefits, the government forgave taxes on up to $20,400.
You still can and should file your 2020 taxes as soon as possible. If possible, you should file your 2020 taxes online and go to your nearest Volunteer Income Tax Assistance site for free tax help. If you live in Philadelphia, Campaign for Working Families provides free tax help. This way you can still qualify for the 2020 tax break that made the first $10,200 of unemployment compensation benefits free of tax and potentially qualify for the Earned Income Tax Credit for you 2020 taxes.
If you are owed a refund, there is a time limit of 3 years, from the original return filing deadline, to file to get the refund. For a 2020 tax return, the filing deadline was May 17, 2021 but because Tax Day is usually April 15, it is best to file a 2020 return to get a refund by: April 15, 2024.
There is no penalty for filing a 2020 return after May 17, 2021 if you do not owe taxes on the return.
Where can I change my tax withholding preference?
You can change your withholding preference (yes or no) in the online portal for both the UC system and the PUA system. You can also call the statewide UC phone number (888-313-7284) and ask a representative to change it.