If you're wondering if unemployment benefits are taxable, you're not alone. After losing her hospitality job during the pandemic, Amanda Rivera from Buffalo, NY, filed for unemployment. What she didn't expect was a surprise tax bill of $1,300 the following spring-money she hadn't saved because she assumed the benefits weren't taxed.
Like Amanda, many Americans rely on unemployment insurance as a safety net, but misunderstand the tax rules. In 2025, all unemployment compensation remains fully taxable at the federal level, and many states tax it too. If you received unemployment this year, knowing how it's taxed will help you avoid the same kind of surprise.
Are Unemployment Benefits Taxable in 2025?
Yes. Unemployment benefits, whether issued by your state or through federal extensions, are taxable income according to the IRS. If you received payments in 2024 or 2025, you should have received a Form 1099-G from your state listing the amount paid (Box 1) and the taxes withheld (Box 4), if any.
That total must be reported on your federal tax return. Learn more here:
🔗 IRS - Topic No. 418 Unemployment Compensation
What About the Pandemic Tax Relief?
Some confusion still lingers from 2020, when the American Rescue Plan excluded up to $10,200 in unemployment benefits from federal taxes. But that was a one-time exception. For all years after 2020, including 2025, the answer to "Are unemployment benefits taxable?" is still yes.
State Rules Vary
Some states follow federal guidance and tax unemployment. States like New York, California, and Illinois include unemployment as part of taxable income. Others-such as Texas, Florida, and Washington-don't tax unemployment because they don't have a personal income tax at all.
You can check your state's policies here:
🔗 Federation of Tax Administrators - State Tax Agencies
How to Withhold Taxes From Benefits
To avoid a bill like Amanda's, the IRS lets you request automatic 10% withholding using Form W-4V. If you don't, it's your responsibility to either set aside money or make estimated tax payments throughout the year.
🔗 Form W-4V - Request for Voluntary Withholding
🔗 IRS - Estimated Tax Payment Info
Some states also offer withholding options for state income taxes. You'll usually have the chance to opt in when you first apply for benefits or update your account settings.
Watch for Fraud and Over-reporting
Over the past few years, many people received 1099-G forms for benefits they never received, a result of widespread fraud during the pandemic. If this happens to you, don't report it as income. Instead:
- Contact your state unemployment office
- Request a corrected 1099-G
- Report the identity theft here:
🔗 IdentityTheft.gov - Report Fraud
The Department of Labor estimates that over $100 billion in unemployment benefits may have been issued fraudulently between 2020-2023.
Free Tools to Help You Calculate Taxes
Use these government tools to better plan for unemployment-related taxes:
🔗 IRS Withholding Estimator
🔗 Consumer.gov Budget Planner
🔗 MyMoney.gov - Tax Tips
They're free to use and don't push you into paid services.
Final Thoughts
So, are unemployment benefits taxable in 2025? Yes, and understanding that now can save you stress later. Don't wait until tax season to figure it out. Review your 1099-G, decide whether to withhold, and use trusted tools to plan. Whether you're still receiving benefits or have already returned to work, staying informed is your best move.
