Where Do I Report Unemployment Income on 1040?

Unemployment benefits received from a state or the federal government are considered taxable income by the Internal Revenue Service (IRS). This means that when you file your annual federal income tax return, you must report all unemployment payments you received. Failing to include this compensation can lead to an unexpected tax bill, interest, and potential penalties.

Understanding Your Form 1099-G

By late January, you should receive a Form 1099-G from the state agency that distributed your unemployment benefits. This document is the official record of the total unemployment compensation you received during the previous calendar year. The most important figure on this form is found in Box 1, which shows the total “Unemployment Compensation” paid to you.

Another significant piece of information is located in Box 4, “Federal Income Tax Withheld.” This box shows the total amount of federal income tax that was already taken out of your benefit payments during the year. You have the option to have taxes withheld from your benefits by providing the payer with Form W-4V, Voluntary Withholding Request. If you chose this option, the amount in Box 4 represents payments you have already made toward your annual tax liability.

If you did not receive a Form 1099-G, you are still responsible for reporting the income. Your first step should be to check the website of your state’s unemployment agency, as many provide electronic access to these forms. If you cannot find it online, you should contact the agency directly to request a copy.

How to Report Unemployment Income on Your Tax Return

The total amount of your benefits, found in Box 1 of the 1099-G, is not entered directly onto the main Form 1040. Instead, you must first report this figure on a separate form called Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

Specifically, you will enter the total unemployment compensation on line 7 of Schedule 1. After you have listed this and any other additional income on the appropriate lines of Schedule 1, you will total these amounts. This total from Schedule 1 is then transferred to your main Form 1040, where it is included in your overall gross income calculation.

This two-step process ensures that all sources of income are properly accounted for before your final tax liability is determined. By first reporting the unemployment income on Schedule 1, you are following the specific procedure required by the IRS to correctly calculate your adjusted gross income (AGI). This AGI figure is foundational for determining eligibility for various deductions and credits.

Reporting Federal Tax Withheld from Unemployment Benefits

The amount shown in Box 4 of your Form 1099-G, “Federal Income Tax Withheld,” represents a credit toward any tax you may owe. This amount is reported directly on your main Form 1040. The withholding from your unemployment benefits is included on line 25b.

While the income from Box 1 increases your taxable income, the withholding from Box 4 reduces the amount of tax you owe. It is treated the same as the federal income tax withheld from a regular paycheck, which would be reported on Form W-2.

The total on line 25b, combined with other tax payments you made throughout the year, is subtracted from your total tax liability. If your total payments exceed the tax you owe, you will receive a refund; if they are less, you will have a balance due.