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Unemployment Compensation & State Taxes

Unemployment Infographic

This page contains guidance and information regarding the treatment of unemployment compensation when filing an Indiana 2020 individual income tax return and was most recently updated on June 16, 2021.

Revised 2020 Unemployment Compensation Worksheet

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  • What do I need to know about unemployment compensation I received in 2020?
    1. Unemployment compensation is taxable. Your unemployment compensation is taxable on both your federal and state tax returns. Be sure to include information from your Form 1099G. 

      Total taxable unemployment compensation includes the new federal programs implemented in 2020 due to COVID-19:
      • Federal Pandemic Unemployment Compensation (FPUC)
      • Pandemic Emergency Unemployment Compensation (PEUC)
      • Pandemic Unemployment Assistance (PUA)
      • Lost Wages Assistance (LWA)

    2. On April 22, the Indiana General Assembly passed an update to Indiana's conformity to the Internal Revenue Code (IRC), but specifically decoupled from certain provisions of IRC, and Governor Holcomb signed this into law on April 29.

      As a result, you could not apply the same federal unemployment compensation exclusion on your 2020 Indiana individual income tax return and that income needed to be added back in. However, you may have been eligible for a deduction that could reduce or even eliminate any state tax due on your unemployment compensation.

    3. DOR revised the unemployment compensation deduction worksheet to account for the difference between federal and state treatment of unemployment income in 2020. Do not use the versions found in the IT-40 and IT-40PNR instruction booklets.

    4. Unemployment income is not considered earned income for the Indiana Earned Income Tax Credit.

    Find out more about conformity to the IRC and Indiana's tax treatment of federal COVID-19 provisions.

    Information Bulletin #119, Internal Revenue Code Provisions Not Followed by Indiana and Clarification of Related Issues, has been updated to reflect several changes enacted by the American Rescue Plan Act. Also, this bulletin has been updated to provide for how the Indiana General Assembly treated various items during the 2021 legislative session. Finally, this bulletin has been updated to provide updated reporting requirements and a worksheet for calculating the Indiana unemployment deduction.

  • I filed my 2020 Indiana individual income tax return.

    Most Hoosier taxpayers affected by unemployment who have filed their 2020 Indiana individual income tax return fall under one of the following two categories:

    Customers who Filed Before March 11

    Customers who filed before March 11 (when the American Rescue Plan Act (ARPA) was enacted for federal tax purposes) would have included all unemployment income in their Federal Adjusted Gross Income (FAGI). They do not need to file an amended return and should have paid any remaining balance due by May 17.

    Customers Who Filed After March 11 

    Many vendors updated their tax preparation software products to perform the appropriate addback of unemployment income. You can check IT-40 Schedule 1 or IT-40PNR Schedule B to see if the excluded portion of unemployment income was added back to your Indiana return as an “Other Add Back Code 120”. Note: There may be other non-conformity additions included in Schedule 1/B, Code 120.

    If unemployment income was not added back to the Indiana tax return, you may not need to file an amended return if you filed electronically.

    Taxpayers who filed using paper forms need to file an amended return if corrections are needed to properly report unemployment income and calculate the Indiana deduction.

    • DOR reviewed and made necessary changes to electronically-filed tax returns whenever possible.
    • You will receive a notice in June for any additional amount due.
    • Taxpayers who did not correctly report or add back unemployment income on their electronically filed Indiana tax return should file an amended return if they do not receive a notice from DOR by July 6.
    • DOR is able to waive the late-payment penalty and interest associated with an unemployment income adjustment (see Executive Order 21-15) through Sept. 30.
  • I need to file my 2020 Indiana individual income tax return and plan to file electronically or prepare my tax return using tax software/online services.

    Those who used tax preparation software or online services to file prepare returns for mail-in or file electronically should check to see that the company updated its software to add back unemployment income excluded from the federal AGI. Most software vendors included information in a software update or email to their customers. When in doubt, DOR encourages customers to contact the software vendor and ask if the necessary updates were released. You can also check IT-40 Schedule 1 or IT-40PNR Schedule B to see if the excluded portion of unemployment income was added back to your Indiana return as an “Other Add Back Code 120”. Note: There may be other non-conformity additions included in Schedule 1/B, Code 120.

    If the software is not updated, then the taxpayer or their tax professional should have:

    • Waited for the software to be updated and filed by the May 17 deadline;
    • Filed for an extension; or
    • Filed a paper return using the guidance below.
  • I need to file my 2020 Indiana individual income tax return and plan to manually prepare a paper-filed tax return.

    Those not using tax preparation software or online services need to perform the following actions using Forms IT-40 or IT-40 PNR when filing or amending their return:

    1. Add back any unemployment income excluded from the federal return onto the Indiana return. Include the following information on IT-40 Schedule 1, Line 6 or IT-40PNR Schedule B, Line 5:
      • Add-back name: "Conformity";
      • Code: 120; and
      • The amount of unemployment income excluded on the federal return.

    2. Refer to instructions on page 18 of the 2020 IT-40 Income Tax Instruction Booklet or page 15 of the 2020 IT-40PNR Income Tax Instruction Booklet and the new 2020 Revised Unemployment Compensation Worksheet to calculate and deduct the nontaxable portion of unemployment income. Do not use the worksheet found in the current version of the booklets.

    3. Include Form 1099G along with other required schedules and documents.

I have questions:

  • My tax return says I have an amount due to DOR.

    You should have paid the amount due to DOR by May 17 or as soon as possible after this date. Notices were sent in June for the remaining amount due. DOR will waive the penalty and interest (see Executive Order 21-15) associated with the unemployment income add-back and deduction through Sept. 30. Penalty and interest on amounts unrelated to the unemployment income add-back and deduction will apply.

    Taxpayers who did not correctly report or add back unemployment income on their electronically filed Indiana tax return should file an amended return if they do not receive a notice from DOR by July 6.

  • I already filed. How do I know if I need to pay additional taxes to Indiana?
    • DOR will make any necessary corrections to the unemployment income addback and deduction for most electronically-filed tax returns.
    • Notices were sent in June to those who owed additional taxes.
    • Taxpayers who did not correctly report or add back unemployment income on their electronically filed Indiana tax return should file an amended return if they do not receive a notice from DOR by July 6.
    • DOR will waive the penalty and interest (see Executive Order 21-15) associated with the unemployment income add-back and deduction if the balance is paid in full by Sept. 30.
    • Penalty and interest on amounts unrelated to the unemployment income add-back and deduction will still apply.
  • Will I be charged a penalty and interest?
    • You should have paid any amount you reported as due on your tax return by May 17 or as soon as possible after that date.
    • In June, you should have received notice that DOR made a correction to your return (AR-80) and/or a bill (AR-40) for any remaining amount due. This will include any penalty and interest on amounts unrelated to the unemployment income add-back and deduction.
    • Taxpayers who did not correctly report or add back unemployment income on their electronically filed Indiana tax return should file an amended return if they do not receive a notice from DOR by July 6.
    • DOR will waive the late payment penalty and interest (see Executive Order 21-15) on the amount due relating to the unemployment income add-back and deduction part of the liability through Sept. 30.
    • Penalty and interest on amounts unrelated to the unemployment income add-back and deduction will apply.
  • I can't pay the bill in full.

    In June you should have received a notice that DOR made a correction to your return (AR-80) and/or a bill (AR-40) for any remaining amount due. This will include any penalty and interest on amounts unrelated to the unemployment income add-back and deduction.

    When you receive your notice, you may establish monthly payment arrangements at intaxpay.in.gov. Interest will continue to accrue, but DOR will not assess additional penalties if a customer establishes a payment by the due date on the bill and the payment plan remains in good standing.

    In accordance with Executive Order 21-15, DOR will waive interest on the portion related to the unemployment income add-back and deduction through Sept. 30.

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