Are Unemployment Benefits Taxed in My State?
If you collected unemployment benefits last year, you may be wondering if you have to pay taxes on the money you received. The short answer is probably.
Rules change on a state-by-state basis, but the majority of states treat unemployment benefits like income and tax those earnings accordingly. Here’s what to know.
Why unemployment benefits are taxable
Unemployment benefits are treated like regular income. Your benefits get reported to the IRS and are subject to federal income tax. The amount you received during the year gets added to your overall taxable income. Although the benefits aren’t specifically taxed (nothing is withheld unless you opt in), it’s that total amount of income that shapes your tax bill.
Most states with a state income tax also collect taxes on unemployment benefits, but some do not. The main difference between unemployment and regular wage income is that you don’t pay Social Security or Medicare taxes on unemployment benefits (listed as FICA taxes). Also, the percentage you pay on your benefits is determined by your income bracket. For example, if you’re a single filer and you earned between $11,601 and $47,150, you fall in the 12% federal tax bracket for 2024.
Chart: States that tax your unemployment benefits (source)
| State | Taxes unemployment benefits? | If so, how much? |
|---|---|---|
| Alabama | No | |
| Alaska | No | |
| Arizona | Yes | Flat rate of 2.5% |
| Arkansas | Yes | Tax rate ranges from 2% to 4.7% depending on income |
| California | No | |
| Colorado | Yes | Flat rate of 4.4% |
| Connecticut | Yes | Rate may be as high as 10% due to solvency issues with the state's Unemployment Trust Fund |
| Delaware | Yes | Tax rate ranges from 2.2% to 6.6% depending on income |
| DC | No | |
| Florida | No | |
| Georgia | Yes | Flat rate of 5.49% |
| Hawaii | Yes | Tax rate ranges from 1.4% to 11% depending on income |
| Idaho | Yes | Flat rate of 5.8% |
| Illinois | Yes | Flat rate of 4.95% |
| Indiana | Yes | Flat rate of 3.15%; some unemployment benefits may also be tax deductible |
| Iowa | Yes | Tax rate ranges from 4.4% to 5.7% depending on income |
| Kansas | Yes | Tax rate ranges from 3.1% to 5.7% depending on income |
| Kentucky | Yes | Flat rate of 4% |
| Louisiana | Yes | Tax rate ranges from 1.85% to 4.25% depending on income |
| Maine | Yes | Tax rate ranges from 5.8% to 7.15% depending on income |
| Maryland | Yes | Tax rate ranges from 2% to 5.75% depending on income |
| Massachusetts | Yes | Flat rate of 5% |
| Michigan | Yes | Flat rate of 4.25% |
| Minnesota | Yes | Tax rate ranges from 5.35% to 9.85% depending on income |
| Mississippi | Yes | Flat rate of 4.7% |
| Missouri | Yes | Tax rate ranges from 1.5% to 4.8% depending on income |
| Montana | No | |
| Nebraska | Yes | Tax rate ranges from 2.46% to 6.44% depending on income |
| Nevada | No | |
| New Hampshire | No | |
| New Jersey | No | |
| New Mexico | Yes | Tax rate ranges from 1.7% to 5.9% depending on income |
| New York | Yes | Tax rate ranges from 4% to 10.9% depending on income |
| North Carolina | Yes | Flat rate of 4.5% |
| North Dakota | Yes | Tax rate ranges from 0% to 2.5% depending on income |
| Ohio | Yes | Tax rate ranges from 2.75% to 3.5% depending on income |
| Oklahoma | Yes | Tax rate ranges from 0.25% to 4.75% depending on income |
| Oregon | Yes | Tax rate ranges from 4.75% to 9.9% depending on income |
| Pennsylvania | No | |
| Rhode Island | Yes | Tax rate ranges from 3.75% to 5.99% depending on income |
| South Carolina | Yes | Tax rate ranges from 0% to 6.4% depending on income |
| South Dakota | No | |
| Tennessee | No | |
| Texas | No | |
| Utah | Yes | Flat rate of 4.55% |
| Vermont | Yes | Tax rate ranges from 3.35% to 8.75% depending on income |
| Virginia | No | |
| Washington | No | |
| West Virginia | Yes | Tax rate ranges from 2.36% to 5.12% depending on income |
| Wisconsin | Yes | Tax rate ranges from 3.5% to 7.65% depending on income |
| Wyoming | No |
How to handle a tax bill if you’re still unemployed
You may be feeling the financial pinch if you’re still unemployed. If you can’t afford to pay your tax bill, the IRS offers a few options.
First, contact the IRS right away to explain your situation and find out if you’re eligible for an alternative payment plan. They can discuss your options with you and set you up on a repayment plan, such as a short-term repayment plan within 180 days or a long-term installment plan over 72 months. It’s peak tax season right now, so it may not be easy to get through right away. Try to be patient.
If you’re not able to pay anything at all, the IRS may decide your account is “currently not collectible.” That designation temporarily delays their collection process.
Keep in mind, your tax debt doesn’t go away. Penalties and interest may accrue on the unpaid amount during this “not collectible” period. You’ll also be expected to pay fees and interest on any installment plan as well. Going forward, if you can afford to pay a little bit toward next year’s tax bill, that’s advisable to avoid a lump sum in April.
How to avoid a hefty tax bill on unemployment benefits
To avoid being socked with a large bill come tax time, you can voluntarily choose to withhold a portion from your unemployment benefits so you don’t get stuck with a tax bill or lose out on a refund you were expecting.
Unless you absolutely can’t manage to pay throughout the year, it’s highly recommended you opt in to withholding a certain amount. The agency that pays your unemployment benefits will withhold a flat 10% to cover all or a portion of your tax bill.
Once you’ve returned to work, it’s worth making sure you have the correct amount withheld to avoid a surprise bill. Use the IRS tax withholding calculator to see how much you should withhold.
What else to know about unemployment tax withholding
Even though the IRS recommends you withhold a certain amount from your unemployment benefits to cover taxes, your wellbeing comes first. Of course, avoiding a big tax bill is preferable, but if money is extra tight, it’s more important to pay your utility bills and keep food in your pantry. You can always work out a way to repay your bill with the IRS later. Better that than letting your fridge go unstocked.
Need help coming back from an unexpected tax bill? MMI offers free financial counseling 24/7, online and over the phone. Let our experts help you create a plan to repay debt, rebuild credit, and start reaching your financial goals.
