California taxes unemployment benefits as income, but you may not owe federal tax
California treats unemployment benefits as taxable income and withholds state tax automatically unless you request otherwise. The state withholds 10.2% of your weekly benefit amount for state income tax. Federal tax works differently: you do not have to pay federal income tax on unemployment benefits in California, though the federal government still counts the money as income when you file your federal return.
The key difference is that California requires the withholding upfront, while federal tax is settled when you file your return. If you receive $500 per week in benefits, California will hold back $51 each week for state tax. That money goes to the state, not to you, unless you file a return and the withholding exceeds what you actually owe.
Key Takeaways
- California withholds 10.2% of your weekly unemployment benefit for state income tax automatically.
- You do not owe federal income tax on unemployment benefits, but the income still counts on your federal return.
- You can request no withholding when you file your claim, but you may owe the state money at tax time if you do.
- If you work part-time while collecting unemployment, both wages and benefits count as income for California tax purposes.
- You can adjust your withholding or request a refund of overpaid taxes when you file your state return.
How California withholds state tax from your benefits
When you file your unemployment claim with the California Employment Development Department (EDD), you choose whether to have taxes withheld. The default is to withhold 10.2% of your weekly benefit. If you choose not to have taxes withheld, you will owe the full amount at tax time unless your income is low enough that you do not have a tax liability.
The 10.2% rate is California's standard withholding for unemployment benefits and does not change based on your other income or filing status. The EDD sends the withheld money to the California Franchise Tax Board, which credits it toward your state tax return. When you file your return, the Franchise Tax Board calculates what you actually owe based on your total income, and you either get a refund or pay additional tax.
You can change your withholding choice at any time through your EDD account online or by calling the EDD. If you initially chose no withholding and realize you will owe money, you can request withholding to begin in the following week.
Why federal tax does not explore to California unemployment
The federal government does not require you to pay income tax on unemployment benefits received in California. This is different from many other states, where federal tax is withheld from unemployment checks. California is one of a smaller group of states that does not tax unemployment benefits at the state level in the traditional sense — instead, the state withholds a flat percentage that functions as prepayment toward your state return.
However, the unemployment income still counts as income on your federal tax return. When you file your federal return, you report the total amount of unemployment benefits you received in the year. The IRS uses this number to calculate your federal tax liability, even though no federal tax was withheld from your checks. If your total income is low enough, you may have no federal tax to pay.
What happens if you work while collecting unemployment
If you earn wages from part-time work while collecting unemployment benefits, both your wages and your benefits count as income for California tax purposes. The 10.2% withholding still applies only to your unemployment benefit amount, not to your wages. Your employer withholds taxes from your wages separately based on the W-4 form you completed.
When you file your state return, the Franchise Tax Board adds your wages and unemployment benefits together to calculate your total income tax. You may owe additional tax if your combined income pushes you into a higher tax bracket. You can adjust your withholding with your employer if you want to increase the amount withheld from your paychecks to cover the extra tax liability.
How to request no withholding or change your withholding
You can choose not to have taxes withheld when you first file your claim, or you can change your choice later. To make this change, log into your EDD account at edd.ca.gov and select the option to update your withholding preference. You can also call the EDD at 1-888-209-8124 to request a change by phone.
If you request no withholding, you will need to be prepared to pay the full amount owed when you file your state return. The Franchise Tax Board will send you a bill if you owe money. Many people choose to keep the 10.2% withholding because it spreads the tax payment across the weeks they receive benefits, rather than facing a large bill at tax time.
Understanding your tax refund or bill at tax time
When you file your California state return, the Franchise Tax Board compares the 10.2% that was withheld from your unemployment benefits against your actual tax liability based on your total income for the year. If more was withheld than you owe, you receive a refund. If less was withheld, you owe the difference.
Your actual tax liability depends on your total income, filing status, and any deductions or credits you claim. A single person with only unemployment income may owe little or no state tax if the benefit amount is low. Someone with both unemployment benefits and significant wage income may owe additional tax. The Franchise Tax Board calculates this when you file.
You can file your state return online through the Franchise Tax Board website or by mail using Form 540 or Form 540NR. If you expect a refund, filing early can get you the money faster. If you owe money, you can pay online, by mail, or through a payment plan if the amount is large.
What documents you need for tax filing
The EDD sends you a Form 1099-G in January or early February showing the total unemployment benefits you received in the previous year and the amount of state tax withheld. You will need this form to file your state return. Keep it with your tax records.
If you also earned wages while collecting unemployment, you will receive a W-2 from your employer showing your wages and the federal and state tax withheld. Both the 1099-G and the W-2 go on your state return. If you are missing either document, you can request a copy from the EDD or your employer.
Frequently Asked Questions
Do I have to pay federal income tax on California unemployment benefits?
No, California unemployment benefits are not subject to federal income tax withholding. However, you still report the benefits as income on your federal return, and the IRS counts them when calculating whether you have a federal tax liability. If your total income is low, you may owe no federal tax.
What if I did not have taxes withheld and now owe money?
You can request withholding to begin when ready through your EDD account, which will reduce the amount you owe at tax time. When you file your return, the Franchise Tax Board will calculate what you owe and send you a bill. You can pay in full or set up a payment plan if the amount is large.
Can I get a refund of the taxes withheld from my unemployment?
Yes, if more than 10.2% was withheld or if your actual tax liability is lower than the amount withheld, you will receive a refund when you file your state return. The Franchise Tax Board processes refunds and typically sends them within a few weeks of accepting your return.
Does the 10.2% withholding explore to all unemployment benefits?
The 10.2% withholding applies to regular unemployment insurance benefits. Other programs like Pandemic Unemployment information (PUA) or Extended Unemployment Compensation may have different withholding rules. Check your EDD account or call the EDD to confirm the withholding rate for your specific benefit type.
What if I moved to another state while collecting California unemployment?
California still withholds state tax on benefits paid to you, even if you moved. You will file a California state return for the year you received benefits in California. If you also earned income in another state, you may need to file a return there as well. Contact the Franchise Tax Board or a tax professional for guidance on multi-state returns.