Important Tax Information for Unemployment Insurance Benefits: What You Need to Know for the 2025 Tax Season
As tax season begins in 2025, it's important to understand how unemployment benefits are taxed, especially if you've received unemployment insurance (UI) benefits in the past year. While New Jersey does not tax UI benefits, they are subject to federal income taxes. Understanding how these taxes work and what to expect will help you prepare for the upcoming tax filing season.
Federal taxes on unemployment insurance benefits
Although New Jersey does not tax Unemployment Insurance benefits, the federal government does. As a result, the IRS considers the Unemployment Insurance benefits you receive to be taxable income. To help you manage your future tax liability, you can voluntarily withhold 10% of your weekly benefits to send directly to the IRS.
You may choose to have federal income tax withheld when you first apply for Unemployment Insurance benefits. Additionally, you may adjust your withholding status at any time during your claim by submitting a request to the New Jersey Department of Labor and Workforce Development. The department can be contacted at:
Unemployment Insurance
PO Box 908
Trenton, NJ 08625-0908
What you need to know about income taxes and unemployment benefits
After the end of each calendar year you receive Unemployment Insurance benefits, you will receive a Form 1099-G from the New Jersey Department of Labor and Workforce Development. This form will show the total number of benefits you received during the year and the amount of federal taxes withheld. The information from the 1099-G is also sent to the IRS.
It's important to carefully review Form 1099-G, as it reflects the total benefits paid to you during the year, regardless of when those payments were made. For example, if you received unemployment payments in 2023 for weeks of unemployment beginning in 2022, those payments will be included on your 1099 2023-G. Likewise, if you receive payments in 2024 for weeks beginning in 2023, those payments will appear on your 1099 2024-G, not your 2023 form.
Identity Theft/Fraud Alert
If you receive a Form 1099-G but did not receive any Unemployment Insurance benefits during the tax year shown on the notice, it could indicate that you have been a victim of identity theft. If this happens, it is crucial to report the suspected fraud immediately. You can do so online or by calling the New Jersey Fraud Hotline at 609-777-4304.
What to do if you were overpaid benefits
If you were overpaid for unemployment insurance benefits, Form 1099-G will still reflect the full amount of funds paid to you, even if you have returned some of that money. This is in line with federal tax regulations. For guidance on reporting overpayments and returned funds, see the “Refunds” section in IRS Publication 525: Taxable and Nontaxable Income.
Availability and delivery of 1099-G
If the New Jersey Department of Labor and Workforce Development has your email address on file, you will receive your 1099 Form 2023-G via email. You can access this information through the Check Claim Status tool no later than January 31. However, the 1099-G will not be available through your unemployment dashboard.
Understanding how unemployment benefits are taxed and how to manage your withholding is essential to preparing for tax season. As tax season for 2025 begins, take the time to make sure you have all the necessary documents, including your 1099-G, and know what to expect regarding your tax liability. If you need to change your withholding status, remember that you can do so at any time by contacting the New Jersey Department of Labor and Workforce Development. Stay informed to ensure a smooth and accurate tax filing process.
Source: NJDOL – Federal Income Tax on Unemployment Insurance Benefits