Unemployment compensation is taxable income and must be reported on a federal income tax return. Taxable benefits include any special unemployment compensation authorized by federal statutes under special circumstances (such pandemic relief). Unemployment income is also generally taxable income under state laws that require payment of an income tax and must be reported on a state income tax return.
A person receiving unemployment compensation may choose to have the government entity that is making the payments withhold amounts due for taxes. This withholding from unemployment compensation is voluntary for the recipient/worker. For example, federal law allows any recipient to choose to have a flat 10% withheld from their benefits to cover part or all of their tax liability. To do that, the worker should fill out Form W-4V, Voluntary Withholding Request, and give it to the agency paying the benefits—not send it to the IRS. If the payor has its own withholding request form, the worker should use it instead.
If a recipient doesn't choose withholding, or if withholding is not enough, they can make quarterly estimated tax payments instead. The payment for the first quarter is generally due on April 30 and payment for the second quarter on July 31. Third and fourth quarter payments are due on October 31 and January 31.
In Texas, unemployment compensation is considered taxable income at the federal level and must be reported on a federal income tax return. This includes any special unemployment benefits provided under federal statutes, such as pandemic relief programs. However, Texas does not have a state income tax, so unemployment benefits are not taxable under state law and do not need to be reported on a state income tax return. Recipients of unemployment compensation have the option to voluntarily have taxes withheld from their benefits by submitting Form W-4V, Voluntary Withholding Request, to the agency distributing the benefits. If they do not opt for withholding, or if the amount withheld is insufficient, they may need to make quarterly estimated tax payments to the IRS. The due dates for these payments are typically April 30, July 31, October 31, and January 31 for each respective quarter.
