Short answer: the IRS says that, generally, you must include in income all unemployment compensation you receive (IRS Topic 418). Have 10% withheld, or make estimated payments, so the tax does not all come due at once. This is general information, not tax advice.
What the IRS counts
- Unemployment compensation includes state unemployment insurance benefits, railroad unemployment compensation benefits, and disability benefits paid as a substitute for unemployment compensation, among other programs the IRS lists (IRS).
- “Generally, you must include in income all unemployment compensation you receive” (IRS Topic 418).
- State income tax treatment of these benefits is set by each state. Check with your state tax agency.
Form 1099-G
You should receive a Form 1099-G showing the unemployment compensation paid to you during the year in Box 1, and any federal income tax withheld in Box 4. The IRS says to report Box 1 on Schedule 1 (Form 1040), line 7, and include Box 4 withholding on line 25b of Form 1040 or 1040-SR (IRS). If a 1099-G shows benefits you did not receive, the IRS says fraud victims should notify the state agency and request a corrected form (IRS).
Withholding with Form W-4V
- You can choose to have federal income tax withheld from your unemployment compensation (IRS).
- For unemployment compensation, the payer is permitted to withhold 10% from each payment, and no other percentage or amount is allowed (Form W-4V).
- Give Form W-4V to the payer of your payments, not to the IRS (Form W-4V).
Estimated tax payments
If you do not choose voluntary withholding, the IRS says you should make estimated tax payments on income such as unemployment compensation, using Form 1040-ES (IRS). Individuals generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed (IRS).
If you already owe
Compare an IRS payment plan with a loan: see IRS payment plan vs personal loan. Borrowing while you are out of work has its own limits: see personal loan while unemployed.
If you still need to borrow
This example is only for the math, not an average tax bill. It borrows $2,000 over 24 months at the Federal Reserve's August 2026 averages: 11.90% APR for 24-month personal loans and 22.36% for credit card plans (G.19). Your rate depends on your credit and the lender.
| Option | Monthly payment | Interest | Total paid |
|---|---|---|---|
| Personal loan at 11.90% | $94.05 | $257.20 | $2,257.20 |
| Credit card at 22.36% | $104.11 | $498.64 | $2,498.64 |
$94.05 x 24 = $2,257.20, and $104.11 x 24 = $2,498.64. Before you add a payment, see how to budget for a loan payment.
Checklist
- Send Form W-4V to the payer to have 10% withheld.
- If you skip withholding, plan estimated payments with Form 1040-ES.
- Check Box 1 and Box 4 on your 1099-G against your own records.
- Ask your state tax agency how it treats unemployment benefits.
- If you owe, compare an IRS payment plan before you borrow.
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Sources
- IRS: Topic no. 418, Unemployment compensation
- IRS: Form W-4V, Voluntary Withholding Request (Rev. January 2026, PDF)
- IRS: About Form 1040-ES, Estimated Tax for Individuals
- IRS: Estimated taxes
- Federal Reserve: G.19 Consumer Credit (released October 7, 2026), terms of credit, August 2026: credit card plans and 24-month personal loans
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.