Identity Theft and Your Tax Return
From Tax Guide.
Tax Guide · Arab, Alabama
Are Unemployment Benefits Taxable?
Unemployment benefits are generally taxable on your federal return, and you receive Form 1099-G, but Alabama does not tax unemployment compensation.
The short answer
Is unemployment taxable?
Unemployment benefits are generally taxable on your federal return, but Alabama does not tax unemployment compensation.
Many people are surprised by this, because the payments feel like a lifeline and not like income. The IRS treats them as income anyway, and you report them on Form 1040. The benefits are reported to you and to the IRS on a form called 1099-G.
Because Alabama does not tax unemployment compensation, you generally do not include it as income on the Alabama return. The two returns follow different rules, and we check how they line up when we prepare both.
Form 1099-G
What is Form 1099-G and where do I get it?
Form 1099-G shows the unemployment benefits you were paid during the year and any federal tax that was withheld, and the state agency that paid you sends it.
The form usually arrives early in the following year, often by mail and sometimes through an online account with the state. If you did not get one, log in to the agency's site or contact the agency for a copy. You are still expected to report what you received even if the form is late.
Check the numbers carefully. A wrong amount can be a simple error, but it can also be a sign that someone filed a fraudulent claim in your name. We cover what to do in identity theft and your tax return.
- Total unemployment compensation paid to you for the year.
- Federal income tax withheld, if you asked for it.
- State income tax withheld, if any.
- Repayments of benefits, which may appear separately.
Withholding
Can I have taxes taken out of my unemployment payments?
Yes, you can generally choose to have federal income tax withheld from unemployment payments, and if you do not, you may owe when you file.
Withholding is optional, so many people skip it to keep more of each payment. Then a bill arrives with the return. If you skipped withholding, or if you have other income with too little withheld, you may want to plan for it. Our guide to estimated quarterly taxes explains paying during the year, and what to do if you owe and cannot pay covers what to do if the balance is more than you can handle.
Unusual situations
What if I got a 1099-G for benefits I never received, or had to repay some?
Do not just file with the wrong number: contact the agency that issued the form, ask for a corrected one, and keep a record of your request.
If someone else filed a claim using your information, the form may show money you never saw. Report the fraud to the state agency and keep copies of everything you send. You should also review our guide on identity theft, because a fraudulent claim can be an early sign of a larger problem.
If you repaid benefits in the same year you received them, the repayment usually reduces what you report. If you repaid benefits from an earlier year, special rules may apply, and they depend on the amount and timing. Bring the repayment records to your appointment.
| Situation | What usually happens |
|---|---|
| Received benefits in the year | Reported as income on the federal return |
| Repaid part in the same year | Generally reduces the amount reported |
| Form shows benefits you never got | Contact the agency; possible identity theft |
| Alabama return | Unemployment compensation is not taxed |
General patterns. Repayment rules depend on the year and the amounts.
Employers
Is there such a thing as Alabama unemployment tax?
Yes, but it is a payroll tax paid by employers to fund the benefits, and it is a different thing from the income tax on the benefits themselves.
If you are a worker collecting benefits, you do not pay this tax. If you own a business with employees, the state and federal governments each have unemployment taxes that you may owe on wages. Alabama has its own rules, and we check how they apply.
Self-employed people generally are not covered by unemployment insurance in the same way and, if you are curious about how your own income is taxed, our guide on self-employment tax may help.
How we can help
Need help reporting unemployment on your tax return?
Our office prepares income tax returns and can report your unemployment benefits correctly on the federal return and, because Alabama does not tax unemployment compensation, handle them accordingly on the Alabama return.
Bring your 1099-G, and any repayment records. Please do not send Social Security numbers or documents through the website; bring them to the office or call us at 256-586-4635.
We serve Arab and the surrounding area, and you can contact us with questions.
Answers
Questions about unemployment and taxes
Do I have to report unemployment benefits?
Yes. Unemployment compensation is generally taxable income on your federal return, and you report it even if you did not receive a Form 1099-G.
Does Alabama tax unemployment compensation?
No. Alabama does not tax unemployment compensation.
Why am I getting a 1099-G if I never filed for unemployment?
It may mean someone used your identity to file a claim. Contact the state agency right away, keep copies, and ask us about the tax side.
Should I have taxes withheld from unemployment?
It is your choice. Withholding can prevent a bill at filing time, while skipping it leaves more in each payment but may leave you owing later.
What if I repaid unemployment benefits?
A repayment in the same year usually reduces what you report. A repayment from an earlier year has its own rules, so bring the records.
Is the 1099-G a bill?
No. It is an information statement showing what you were paid. Any tax due is figured on your return.
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Related reading
Estimated Quarterly Taxes: Who Pays and How It Works
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Owe Taxes and Cannot Pay? Your Options
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Income Tax Services
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