Will I Get a Tax Refund If I Was on Unemployment?

Losing a job is stressful enough, but when tax season comes around, things can feel even more confusing. Many Americans who received unemployment benefits last year are wondering whether they’ll get a tax refund or end up owing the IRS. Understanding how unemployment affects your taxes can help you prepare and avoid any surprises when filing your return.

Understanding How Unemployment Benefits Are Taxed

Unemployment benefits are considered taxable income by the federal government. That means you must report them when filing your federal tax return. The money you received through your state’s unemployment program, or additional federal benefits, is treated like regular income.

When you applied for unemployment, you may have had the option to have federal taxes withheld, usually at a flat rate of 10%. If you choose to withhold taxes, you’re less likely to owe money when you file. However, if you didn’t have taxes withheld, you might owe a portion of your benefits back to the IRS.

Will You Still Get a Tax Refund?

Whether you receive a refund depends on several factors, including how much tax was withheld during the year and any credits or deductions you qualify for. If you worked part of the year before receiving unemployment, your employer may have already withheld enough taxes from your paycheck. This can increase your chances of getting a refund.

But if unemployment was your only source of income and you didn’t choose withholding, you might owe taxes instead of receiving a refund. The IRS will add your unemployment benefits to any other income to calculate your total taxable amount.

Credits That May Help You Get a Refund

The good news is that you might still qualify for certain tax credits even if you were unemployed for part or all of the year. These credits can reduce your tax liability or even lead to a refund.

Here are some common credits to check:

  • Earned Income Tax Credit (EITC): If you had earned income before becoming unemployed, you may still qualify for the EITC, which can provide a significant refund depending on your income and family size.

  • Child Tax Credit (CTC): If you have dependent children, you may qualify for this credit even if your income decreased due to job loss.

  • Premium Tax Credit: If you purchased health insurance through the Marketplace, you may be eligible for a tax credit based on your income level.

These credits are designed to provide relief to low- and moderate-income individuals and families, especially those who faced employment challenges during the year.

What If You Owe Taxes on Unemployment?

If you didn’t have taxes withheld from your unemployment benefits and end up owing the IRS, don’t panic. You have options.

You can:

  • Set up a payment plan with the IRS to pay your balance over time.

  • Adjust your current year’s withholdings if you’re employed again, to avoid future tax bills.

  • Consult a tax professional to explore whether you qualify for penalty relief or deductions that could lower your tax due.

State Taxes on Unemployment

While the federal government taxes unemployment benefits, not every state does. Some states, such as California, New Jersey, and Pennsylvania, exempt unemployment income from state taxes. Others, like New York and Illinois, tax it just like regular income. Knowing your state’s tax rules can make a big difference when filing your return.

Tips to Prepare for Next Tax Season

If you’re still receiving unemployment benefits or recently started a new job, here are some steps to make next year easier:

  1. Set aside a portion for taxes: Even saving 10% of your benefits can help you avoid a tax bill.

  2. Check your withholdings: If you’re employed again, review your W-4 form to make sure the correct amount is withheld.

  3. Keep detailed records: Save your Form 1099-G (Unemployment Compensation) and any other income documents.

  4. Plan early: Filing your taxes early can help you avoid delays and ensure you get any refund owed as soon as possible.

How a Tax Professional Can Help

Tax rules related to unemployment income can be confusing, especially if your financial situation changed during the year. That’s where Zuazo & Associates can make a difference. Their team of experienced tax professionals can help you file your return accurately, claim every credit you qualify for, and minimize your tax burden.

They take the time to understand your situation, whether you received unemployment benefits, changed jobs, or started a new business. With personalized tax planning and expert guidance, Zuazo & Associates ensures you stay compliant while keeping more of your hard-earned money.

If you want peace of mind this tax season, working with a trusted firm like Zuazo & Associates can help you save time, reduce stress, and make informed financial decisions for the year ahead.

Final Thoughts

Receiving unemployment benefits doesn’t automatically mean you won’t get a refund. It depends on how much was withheld, your total income, and the credits you qualify for. If you’re unsure about your situation, don’t wait until the last minute to get help.