Taxes on Unemployment Benefits
All benefits are considered gross income for federal income tax purposes. This includes benefits paid under the federal CARES Act, Federal Pandemic Unemployment Compensation (FPUC), state Extended Benefits (EB), Trade Adjustment Assistance (TAA), Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and Lost Wages Assistance (LWA). DES reports these benefits to the Internal Revenue Service (IRS) for the calendar year in which the benefits were paid.
You may choose to have federal income tax withheld from your unemployment benefit payments at the rate of 10% of your gross weekly benefit rate (before deductions for earnings, benefit reduction, child support, etc.), plus the allowance for dependents (if any).
The amount deducted for state income tax will be 10% of the amount deducted for federal taxes, which is currently calculated as 1% of the gross weekly benefit amount. Please Note: State income tax cannot be withheld from the $300 additional weekly benefit in Lost Wages Assistance (LWA) and the $600 additional weekly FPUC benefit for regular UI claims. Claimants who received FPUC and/or LWA in regular UI will be responsible for paying any tax due on those amounts when filing state income taxes for calendar year 2020.
After selecting your tax withholding on the initial Unemployment Insurance (UI) application, you can change your withholding preferences by completing the Voluntary Election for Federal/State Income Tax Withholding form (UB-433). After completing the form, submit it to DES by mail or fax.
To submit by mail: Department of Economic Security, Unemployment Insurance Administration, P. O. Box 29225, Phoenix, Arizona 85038-9225
To submit by fax: Phoenix (602) 612-8705 or (888) 305-1348 or Tucson (520) 770-3357 or (520) 770-3358
If you are receiving Pandemic Unemployment Assistance (PUA), you can view your current withholding selections and change your withholding preferences by logging into the PUA portal and selecting “Federal Tax Deduction” from the “Unemployment Services” section of your dashboard. After making your tax withholding selection, click “save” to have your preference updated. For more information, please refer to the PUA user guide located on the homepage of PUA portal.
Tax Form 1099-G
Claimants will receive a 1099-G tax form in early 2021 to be used for their 2020 federal and state income tax filings. This form will provide the total amount of UI benefits paid in 2020, along with the sum of any federal or state taxes that were withheld. DES will provide additional information about this form once available.