Let’s find a tax preparation office for you

or

Information regarding browser or device support

Oh no! We may not fully support the browser or device software you are using!

To experience our site in the best way possible, please update your browser or device software, or move over to another browser.

Close
Covid-19 Impact

Top 3 Tax Tips for Unemployment Benefits

Mark Steber Chief Tax Information Officer Published On October 30, 2020

Share

The pandemic has left many people jobless, furloughed, and uncertain on where their next paycheck would come from. Unemployment benefits have been claimed at a record high, which has helped support those hit hardest during the pandemic. But what does this mean for these taxpayers? Anyone who received unemployment benefits will have to pay taxes on the benefits they received. 

1. Unemployment Benefits Are Taxable

By law, unemployment benefits are taxable and must be reported to the IRS on your tax return. However, according to a recent Jackson Hewitt survey, 39% of people do not know that unemployment benefits are taxable. Taxable benefits include any of the special unemployment compensation authorized by Congress under the Coronavirus Aid, Relief, and Economic Security (CARES) Act this spring. On the other hand, stimulus payments, formally known as the Economic Impact Payments (EIP) are not considered taxable income, although that amount will still need to be on your tax return.

Furthermore, according to the survey, 49% of single people and 56% of taxpayers under the age of 30 do not know unemployment benefits are taxable. This puts younger taxpayers at a severe disadvantage since they historically do not have expendable income or large savings to cover unexpected income taxes.

 

2. State Income Tax Varies for Unemployment Benefits

Anyone who received unemployment benefits must pay federal income tax on those benefits. However, state laws vary on whether unemployment recipients have to pay state income tax on the money they received. Some states require recipients to pay state income tax, while others say unemployment benefits are income tax exempt. 

3. Set Money Aside to Cover Unexpected Unemployment Benefit Taxes

Taxpayers who received unemployment benefits and did not withhold any federal or state income tax should consider setting money aside now to cover those taxes for their 2020 tax return. According to Jackson Hewitt’s survey, this may be the case for many Americans this year since 61% of those who collected unemployment benefits have not withheld or set aside money for their 2020 income taxes. As a result, those living paycheck to paycheck should prepare to receive a much smaller tax refund or no refund at all this tax season. 

Contact your local Jackson Hewitt Tax Pro today to help you start preparing for your 2020 tax return.

Survey Methodology 

The Jackson Hewitt survey was conducted online by Dynata September 30 – October 1, 2020 among 1,000 American adults aged 18 and older. Respondents to the survey were selected from those who volunteered to participate in online surveys. One thousand complete surveys were collected using the sample framework based on U.S. Census data for age, ethnicity, gender, region, and income.

About the Author

Mark Steber is Chief Tax Information Officer, responsible for key initiatives that support overall tax service delivery and quality assurance. Mark also serves as a Jackson Hewitt liaison with the Internal Revenue Service, states, and other government authorities. With over 30 years of tax experience and deep knowledge of the federal and state tax codes, Mark is widely referenced as an expert on consumer income tax issues, especially electronic-tax and data-protection issues.

View Mark's LinkedIn Profile Jackson Hewitt Editorial Policy

Related articles

Coronavirus Unemployment Benefits and the CARES Act

In late March 2020, Congress passed the CARES Act. It’s an enormous stimulus bill designed to help protect businesses and individuals from the economic effects of the shutdown in response to the Coronavirus.

View more

Coronavirus Relief for Small Businesses Under the CARES Act

Shutting down nonessential businesses may have been necessary to slow the coronavirus, but it’s nonetheless leaving staggering economic hardship in its wake. Recognizing the impending financial crisis, especially to small businesses, Congress passed two important bills to provide economic relief. The first was the CARES Act in March 2020. The second was the Paycheck Protection Program and Health Care Enhancement (PPPHCE) Act on April 21.

View more

Why Jackson Hewitt®?

We’ll work hard for you

Our Tax Pros will answer your questions, provide tax tips, and help you get smarter about your money.

We know our stuff

Jackson Hewitt is a leader in the tax industry, having prepared millions of tax returns in more than 35 years.

We’ll make it easy

We’re committed to helping you, fast and efficiently. Taxes done how you want and when you want.