Do you have to pay taxes on unemployment compensation? Yes, you do.

Money from stimulus checks is not considered taxable income

FILE - In this April 23, 2020 file photo, President Donald J.Trump's name is printed on a stimulus check issued by the IRS to help combat the adverse economic effects of the COVID-19 outbreak in San Antonio. The IRS said that after initial problems, it is getting more of the second round of relief payments to taxpayers. A number of people who filed their taxes with an online preparation service initially found that their economic impact payment did not make it to them directly. (AP Photo/Eric Gay) (Eric Gay, Copyright 2020 The Associated Press. All rights reserved.)

SAN ANTONIO – The coronavirus pandemic ravaged the U.S. economy and left millions of people jobless and in need of unemployment benefits.

President Trump signed the CARES Act into law on March 27, and part of the new law created a Federal Pandemic Unemployment Compensation program, which gave states the option to provide an additional $600 a week to people on unemployment, according to the Department of Labor.

The CARES Act provided the weekly supplemental employment compensation through July 31, 2020, which meant many unemployed workers were able to collect a check while searching for a job.

However, many people are starting to realize that the federal government considers that income a taxable wage.

“Unemployment is taxable income, but not earned income,” SnapBack Tax Services manager Ashley Haywood recently told KSAT.

All unemployment compensation received in 2019 must be reported on 2020 federal tax returns.

“Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted [last] spring,” according to the Internal Revenue Service.

Money received from stimulus checks is not considered taxable income.

Haywood also told KSAT that people who received unemployment benefits will not be eligible for the child credit. For new parents or anyone who welcomed a child in 2020, there is still the option of the recovery rebate credit which is only available to those who didn’t receive the full amount of the stimulus payments for their extra dependent or dependents. Read more on that here.

If I received unemployment benefits, how do I know what to report to the IRS?

“Your state will send you Form 1099-G, which will show the amount of unemployment compensation paid to you during the year. If you repaid a portion of the benefits received, you can reduce the benefits received by the amount repaid,” according to H&R Block.

Anyone still receiving benefits can choose to withhold taxes from the checks they are receiving versus having to pay taxes all at once during tax season.

While unemployment income is subject to federal and state taxes, Texas is one of 15 states that does not tax unemployment income because Texas does not have a state income tax.


About the Author:

Mary Claire Patton has been a journalist with KSAT 12 since 2015. She has reported on several high-profile stories during her career at KSAT and specializes in trending news and things to do around Texas and San Antonio.