There are two things you need to know when you have unemployment compensation income.
Unemployment compensation is taxable. Your unemployment compensation is taxable on both your federal and state tax returns. Be sure to include information from your 1099G. If you did not receive this form in the mail, refer to the Department of Workforce Development’s website, you may need to enter the Uplink system to print your copy.
Form 1099G reports the total taxable income DWD issues you in a calendar year and is reported to the IRS. As taxable income, these payments must be reported on your state and federal tax return.
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)
Note: Unemployment income is not considered earned income for the Indiana Earned Income Tax Credit.
You may be eligible for a deduction. You may be able to reduce or even eliminate any state tax due on your unemployment compensation. Be sure to complete the unemployment compensation deduction worksheet found in the income tax instruction booklet.
American Rescue Plan Act 2021 Impacts
Updated March 17, 2021
On March 11, 2021, President Biden signed into law the American Rescue Plan Act, 2021 (Rescue Plan). DOR is analyzing the impact of the new law in conjunction with the Governor Holcomb Administration and General Assembly leaders and will provide updated guidance over the coming weeks.
One question that has been asked frequently since the passage of the Rescue Plan is in regard to the creation of a federal exclusion from income for the first $10,200 of unemployment payments received during 2020, subject to certain qualifying criteria. As Indiana does not currently conform to the Internal Revenue Code as of a date that would include the Rescue Plan, that income exclusion does not currently apply in Indiana. Therefore, as of this time, it would need to be added back when filing the Indiana return. That, of course, could change depending on the actions of the General Assembly during the remainder of legislative session.
Because the Indiana General Assembly is currently discussing how to react to these recent federal changes, we would suggest the following:
- If you have already filed, we would encourage you to wait pending the outcome of the legislative session to see what the Indiana General Assembly does in regards to conforming with the changes in the Rescue Plan.
- If you have not yet filed, we would also encourage you to wait pending the outcome of the legislative session to see what the Indiana General Assembly does in regards to conforming with the changes in the Rescue Plan. As session potentially continues until April 29th – after the April 15th filing deadline – you may need to consider filing an extension of time to file.
- NOTE: If you are filing an extension, you must still have paid at least 90% of your tax liability for 2020 to avoid incurring additional penalties and interest for underpaying your tax liability as of the due date.
Victims of Unemployment Fraud
What do you do if you’re a victim of unemployment fraud? Report it to the DWD immediately through their website. If you’re a victim of identity theft or someone has simply filed a fraudulent unemployment claim in your name, all the tools you need are on that website, including how to contact the Indiana State Police.
If you are ready to file your taxes with DOR and are a victim of ID theft do the following:
- Fill out the IRS ID Theft Affidavit.
- Email the IRS Affidavit and a copy of the fraudulent 1099G to DORITCInfo@dor.in.gov
- File your taxes and include all income information.
Below you will find some frequently asked questions and tips for next year if you continue to receive unemployment compensation.
Frequently Asked Questions
How can I get some information about the 1099G I got from the Department of Workforce Development?
How can I file my state income taxes for free?
Does the Indiana Department of Revenue (DOR) have a payment plan option?
Where do I find information for estimated tax?
How do I contact DOR?
Planning for Next Year
If you continue to receive unemployment compensation next year, keep in mind the following tips to help plan and reduce your stress for next tax season:
- Keep track of possible deductions and credits you might be able to plan on.
- Put some money back to ensure you are able to pay your taxes.
- Find out how to pay estimated tax.
- Visit the Indiana Department of Workforce Development to learn more about filing for unemployment and/or signing up to have Indiana State and county tax withheld. This way you won't need to pay all your tax at one time (when you file).