You can choose to have federal income tax withheld from your unemployment payments, but you are not required to

When you receive unemployment benefits, the federal government does not automatically take taxes out of your check the way an employer does from a paycheck. Instead, you decide whether to have federal income tax withheld. You can request withholding, decline it entirely, or change your choice later. The decision depends on your total income for the year and whether you want to pay taxes gradually or handle them when you file your return.

Most people who receive unemployment are still responsible for paying federal income tax on those benefits — the withholding question is just about timing and method. If you do not have taxes withheld and you owe money at tax time, you may face a bill you did not expect. If you do have taxes withheld, you pay a smaller amount now and may get a refund later.

Key Takeaways

  • Unemployment benefits are taxable income, and you owe federal income tax on them unless you have very low total income for the year.
  • You can request federal income tax withholding on your unemployment payments by completing a form with your state's unemployment office, usually online or by mail.
  • The standard withholding rate is 10 percent of your weekly benefit amount, but you can request a different percentage or change your choice at any time.
  • If you do not have taxes withheld and owe money at tax time, you may owe penalties and interest in addition to the tax itself.
  • You can change your withholding choice, stop withholding, or start withholding partway through the year without penalty.

How to request tax withholding on your unemployment benefits

The process varies slightly by state, but most states let you request withholding online through your unemployment account, by phone, or by mailing a form. You will need to complete Form W-4V (Voluntary Withholding Request) or your state's equivalent form. Some states call it a tax withholding election or tax election form.

Log into your state unemployment portal and look for a section labeled "tax withholding," "tax election," or "payment preferences." If you cannot find it online, call your state's unemployment office and ask how to request withholding. You can also read Form W-4V from the IRS website and mail it to your state unemployment office with a copy of your Social Security card or tax return.

Once you submit the form, withholding typically begins on your next payment. You do not need to do anything else — the state will deduct the amount from each weekly or biweekly check automatically until you request a change.

The 10 percent withholding rate and whether it covers your tax bill

The standard withholding rate is 10 percent of your weekly benefit amount. If you receive $400 per week, 10 percent withholding means $40 comes out of each check. This is a flat rate set by federal law, and most states use it.

Whether 10 percent is enough to cover your actual tax bill depends on your total income for the year. If unemployment is your only income and you are single, 10 percent withholding usually covers most or all of your federal tax liability. If you have other income — wages from a job, self-employment income, investment income, or a spouse's income — you may owe more than 10 percent of your unemployment benefits in tax.

You can request a higher withholding percentage if you expect to owe more. Some states let you choose a different percentage on the withholding form; others require you to contact the office directly. There is no penalty for requesting extra withholding, and you can change it at any time.

What happens if you do not have taxes withheld

If you decline withholding and do not pay taxes on your unemployment benefits through another method, you will owe the full amount when you file your tax return. The IRS will expect you to pay federal income tax on 100 percent of your unemployment benefits, regardless of whether you had withholding.

Depending on how much you owe, you may face a tax bill that is larger than you expected. If you cannot pay the full amount by the tax important date, the IRS charges interest and penalties on top of the tax itself. You can set up a payment plan with the IRS, but you will still owe the extra charges.

Some people choose not to have withholding because they expect a refund from other sources (like a job they left partway through the year) or because they want to keep more money in each check. This is a valid choice, but it requires planning: you need to either save the money to pay taxes later or know that you will receive a refund that covers the bill.

Changing or stopping your withholding at any time

You are not locked into your withholding choice. You can request a change, increase, decrease, or stop withholding whenever you want, and the change takes effect on your next payment. There is no penalty for changing your mind, and you can make as many changes as your situation requires.

Common reasons to change withholding include: you got a job and now have other income (increase withholding), you lost a second job and unemployment is now your only income (decrease withholding), or you realize you will owe more or less than you thought (adjust accordingly). Use the same process to change your withholding as you did to request it originally — log into your state portal, call the office, or mail a new form.

Unemployment benefits and your total tax picture

Your unemployment benefits are added to all your other income when you file your tax return. If you worked part of the year and received unemployment for part of the year, your total income includes both the wages and the benefits. The tax you owe depends on your total income, not just the unemployment portion.

This matters because it affects whether 10 percent withholding is enough. If you earned $20,000 in wages and received $10,000 in unemployment benefits, your total income is $30,000. Your tax liability is based on that $30,000, not just the $10,000. If you only had withholding on the unemployment portion, you may not have withheld enough overall.

When you file your return, you will report your unemployment benefits on line 19 of Form 1040. The IRS will also receive a copy from your state, so you cannot omit them. If you had withholding, you will report that on your return as well, and it will reduce the amount you owe or increase the refund you receive.

Special situations: very low income and tax-exempt status

If your total income for the year is below the threshold where you owe federal income tax, you may not owe any tax on your unemployment benefits. The threshold depends on your age, filing status, and whether anyone can claim you as a dependent. For 2024, a single person under 65 with no dependents does not owe federal income tax if their total income is below $14,600.

If you know you will be below the threshold, you do not need to have withholding. However, if you are unsure, it is safer to have withholding than to owe money later. You can always request a refund of excess withholding when you file your return.

Some people are exempt from federal income tax withholding entirely — for example, certain religious groups or those with specific visa statuses. If you believe you are tax-exempt, contact your state unemployment office to discuss your situation. You will likely need to provide documentation of your status.

Frequently Asked Questions

Do I have to have taxes withheld from unemployment?

No, withholding is voluntary. You can choose to have federal income tax withheld, or you can decline and pay taxes when you file your return. However, you are still responsible for paying the tax itself — choosing not to have withholding does not eliminate your tax bill.

What if I had withholding but still owe money at tax time?

This can happen if your total income is higher than expected or if 10 percent withholding was not enough. You will owe the remaining balance when you file. You can request a higher withholding percentage for future payments, or you can adjust your withholding on other income sources (like a job) to cover the gap.

Can I get a refund of taxes I had withheld?

Yes. If you had more withheld than you actually owe, you will receive a refund when you file your tax return. This is common if you had withholding but your total income ended up being lower than expected, or if you had withholding on unemployment and also had taxes withheld from a job.

What if I did not have withholding and cannot pay my tax bill?

Contact the IRS to set up a payment plan. You can pay in installments over time, though you will owe interest and penalties on top of the tax. The sooner you contact the IRS, the more options you have — waiting until after the important date increases the penalties.

Does my state also tax unemployment benefits?

Some states tax unemployment benefits and some do not. This is separate from federal withholding. Check your state's tax rules or contact your state unemployment office to find out whether you owe state income tax on your benefits and whether you can request state withholding as well.