Taxing Times: Will Unemployment Benefits Be Taxed?

Workers who didn't withhold taxes from their unemployment benefits could have a bigger tax bill than they would normally.
Posted at 10:07 AM, Feb 04, 2021

In 2020, the U.S. saw widespread joblessness and business closures — making tax prep this year a bit complicated. 

I’m not an expert, but we spoke with a lot of them, and asked: Will unemployment benefits be taxed? 

"The simple answer is yes," said Mark Steber, chief tax information officer at Jackson Hewitt.

However, this only applies to people who didn’t choose to have taxes withdrawn from their benefits. Typically, not withdrawing doesn’t add up to a big tax bill. But this year could be different.  

"Because these benefits were so much larger than they normally are, an awful lot of people will end up having some taxes owed on those benefits," said Nathan Rigney, principal tax research analyst at H&R Block.

So if you didn’t choose to withdraw taxes when you filed for unemployment, make sure you have all the proper documentation for both state and federal benefits.

"Taxpayers who received unemployment benefits will have to look for more than one tax document this year. And they may even have to go to the state website and download it," Steber said.

For more information on the 2020 tax season, visit