If you’ve lost your job and are receiving unemployment, pay attention to the tax rules — they can help you maximize the cash you get right now or minimize the bill you might face later. And if you’re wondering, “Is unemployment taxable?” we have answers for that, too.

Yes, unemployment benefits are taxable. At the federal level, the IRS views unemployment benefits as income. Some states also tax these benefits, while others tax some or none of it.

How are Unemployment Benefits Taxed?

You include your unemployment benefits in your income when you file your tax return. So having taxes withheld from your unemployment checks can help you pay as you go and help prevent or reduce a surprise tax bill when you file your tax return by mid-April or October with a tax extension.

Here’s a basic rundown of how it works.

Decide whether you want taxes withheld from your unemployment checks

When you sign up to receive unemployment benefits, you can choose whether to have a flat 10% withheld for federal taxes.

• If you want to go this route, fill out IRS Form W-4V (“Voluntary Withholding Request”) and turn it in at your local unemployment office. You can only have a flat 10% withheld; you can’t customize the amount.
• You can also choose not to have taxes withheld to have more money in your pocket, but know that in January both you and the IRS will receive Form 1099-G showing how much unemployment compensation you were paid.
• If as an employee you voluntarily contributed to a private fund for unemployment benefits — this may be the case for some union members, for example — the benefits you receive likely are taxable if you get more than you put in.
• If you’ve already signed up to receive unemployment benefits, or are already receiving benefits and have a better sense of whether you can afford to pay taxes as you go, you can change your withholding preference by filing a new Form W-4V with your local unemployment office.

Prepare to make quarterly estimated tax payments

If you’re not having taxes withheld from your unemployment checks, the IRS would like you to make quarterly estimated tax payments. Why? Because income taxes are a pay-as-you-go arrangement in the United States, which means that when you get your unemployment check, the IRS wants its cut as soon as possible.

• To pay quarterly estimated taxes, basically, you’ll need to estimate your tax liability for the whole year and then make payments on that estimated bill over the course of the year.
• You can have tax withheld from your checks and pay estimated quarterly taxes at the same time. This combo approach might be a good idea if you think a flat 10% withholding won’t be enough to cover your tax bill later.
• If you miss a deadline to make a quarterly estimated tax payment, you can certainly “catch up” later and the IRS will gladly accept your money. But you may owe a penalty on that late payment.

You may need to file a tax return

Generally speaking, if your income is above a certain level — including your unemployment benefits — you need to file a tax return with the IRS. But what that income threshold is depends on your gross income, your filing status, your age and whether someone can claim you as a tax dependent.

If you do need to file a tax return, that may actually be a good thing. You may also qualify for tax credits and deductions that can get you a tax refund.

How to Pay Taxes on Unemployment Benefits

When you receive unemployment benefits, you have the option to have taxes withheld from your payments – like you would from your salary – so you won’t have a surprise bill at tax time.

You can ask to have taxes withheld from your payments when you apply for benefits or you can file IRS Form W-4V Voluntary Withholding Request with your state unemployment office. Keep in mind that you can request only 10% of each payment be withheld from your unemployment benefits for federal income taxes.

“The decision as to whether or not to have income taxes withheld from unemployment benefits is uniquely yours,” says Mitchell Freedman, a CPA and personal financial specialist in Westlake Village, California.

“If you still receive a refund of taxes withheld or estimated, even after receiving the benefits, consider nothing. However, if you are concerned as to whether or not you will be able to write a check to the IRS come April, then have them withhold income taxes, which will take some of the stress out of paying your liability,” he adds.

You may also have some other options to pay taxes on your unemployment benefits. Instead of having income taxes withheld from them, you could pay estimated taxes each quarter, which adds more flexibility. Or, you could have more money withheld from your paychecks if you return to work later in the year.

Read Also: How to Claim Tax Back if You Have Overpaid

“If you’re strapped for cash and need every dollar for living expenses, I would take out minimal taxes now and deal with the shortage at tax time,” says Morris Armstrong, an enrolled agent in Cheshire, Connecticut.

You may have to pay a penalty, however, because you didn’t pay taxes throughout the year. “Keep in mind that interest rates are higher than they have been in years and shortfalls will cost you more,” he says.

“(Unemployment) is taxable and you should have taxes withheld, if feasible, or make adjustments further down the road through withholding or estimated payments,” Armstrong adds.

Which State Pays the Highest Unemployment?

Unemployment is a significant economic indicator, and the unemployment rate can provide insight into the overall health of an economy. However, it’s important to note that unemployment rates can vary widely from state to state. The natural rate of unemployment falls between 3.5% and 4.5%, indicating the baseline level of joblessness in a healthy economy.

The causes of unemployment can be classified into three main types: cyclical, structural, and frictional. Cyclical unemployment occurs during economic downturns when there are fewer jobs available than there are job seekers. This often leads to widespread layoffs as companies struggle with reduced consumer demand.

Structural unemployment is long-term and involuntary, often resulting from technological advancements and job outsourcing. Frictional unemployment encompasses several causes, including voluntary workforce exits, relocation, new entrants to the workforce, and re-entrants after a period of absence.

Each state operates its own unemployment insurance program

When discussing cyclical unemployment, it’s important to consider its impact on individuals and families. As job losses occur due to economic downturns, many individuals may find themselves in need of financial support. This is where unemployment benefits come into play.

Unemployment benefits, also known as unemployment compensation or insurance, are payments provided by the government to support those who are out of work.

In the United States, each state operates its own unemployment insurance program, with varying benefit durations and amounts. For example, most states offer benefits for up to 26 weeks, with payment ranges from $235 to $823 per week. These benefits are crucial in helping individuals and families navigate the challenges of job loss and financial instability.

When it comes to the impact of unemployment benefits, it’s important to recognize their role in providing a safety net for those affected by job loss. As stated by an expert in labor economics, “Unemployment benefits serve as a vital lifeline for individuals and families during times of economic hardship.” These benefits not only provide financial support but also contribute to stabilizing the overall economy by helping to sustain consumer spending and confidence.

Unemployment Benefits by State 2024 (Maximum Weekly Benefits)

• Massachusetts $974
• New Jersey $804
• Connecticut $685
• Rhode Island $661
• Pennsylvania $594
• Illinois $542
• Iowa $531
• Ohio $530
• New Mexico $514
• Maine $511
• Maryland $487
• Alaska $370
• Michigan $362

Unemployment Rates for States

• Maryland 1.8
• North Dakota 1.9
• South Dakota 2.0
• Vermont 2.1
• Nebraska 2.3
• New Hampshire 2.3
• Alabama 2.4
• Utah 2.8
• Florida 2.9
• Hawaii 2.9
• Kansas 2.9
• Massachusetts 2.9
• Rhode Island 2.9
• Virginia 2.9
• Maine 3.0
• Montana 3.0
• South Carolina 3.0
• Wyoming 3.0
• Minnesota 3.1
• Missouri 3.2
• Arkansas 3.3
• Colorado 3.3
• Idaho 3.3
• Iowa 3.3
• Mississippi 3.3
• Oklahoma 3.3
• Wisconsin 3.3
• Georgia 3.4
• Pennsylvania 3.4
• Louisiana 3.5
• North Carolina 3.5
• Tennessee 3.5
• Connecticut 3.6
• Ohio 3.6
• Oregon 3.6
• Indiana 3.7
• New Mexico 3.9
• Washington 4.0
• Texas 4.1
• Delaware 4.2
• West Virginia 4.2
• Arizona 4.3
• Kentucky 4.3
• Michigan 4.3
• New York 4.3
• Alaska 4.4
• Illinois 4.7
• New Jersey 4.7
• California 4.9
• District of Columbia 5.0
• Nevada 5.4

What Country Pays the Most Unemployment?

The highest and lowest unemployment rates in the world vary dramatically, even among the world’s largest economies.

Unemployment in the United States, the largest economy as measured by gross domestic product (GDP), was 3.5% at the end of February. 2020—the lowest rate in half a century—but quickly rose to 14.7% by April at the start of the COVID-19 pandemic and its economic impact.

By way of comparison, Investopedia’s historical research shows that the average U.S. annual unemployment rate from 1949 through 2019 was 5.8%. The Congressional Budget Office originally expected the unemployment rate to peak at over 14% in the third quarter of 2020 and to quickly improve after that.

Although it was right about the peak, the U.S. economy recovered much faster than predicted. The unemployment rate decreased every month after the start of the pandemic—except for small, intermittent increases through May 2023. As of December 2023, the unemployment rate was 3.7%.

Economic recovery wasn’t experienced equally by all countries. Several nations posted unemployment rates just as bad, if not worse, in the wake of the pandemic than they were before it began.

Below are the countries with the highest and lowest unemployment rates, in addition to the unemployment rates of the world’s largest economies (ranked by GDP), according to the most recently available data from the World Bank.

Highest Unemployment Rates

The world’s five highest unemployment rates at the end of 2022 (latest information) were in Africa and occupied Palestine.

• South Africa: 29.8%
• Djibouti: 27.9%
• West Bank and Gaza: 25.7%
• Eswatini: 24.4%
• Republic of Congo: 21.8%

South Africa had one of the highest unemployment rates in the world in 2022. It’s also the richest country in this grouping. The World Bank estimated its GDP per capita to be $6,776.5 in 2022.

Djibouti benefits from its location on the Red Sea, making it a bridge between Africa and the Middle East. Djibouti was less affected by the pandemic than other countries due to “buoyant free zone re-exports and exports of transportation, logistics, and telecommunication services to and from Ethiopia in 2020 Q3 and Q4.” After recovering in 2021, its economic activity slowed in 2022. GDP growth of 5.1% and 5.7% is forecast for 2024 and 2025, respectively.

The Palestinian territories of the West Bank and Gaza are currently facing an unsustainable economic situation. The Palestinian economy felt the impact of both the economic fallout of the COVID-19 outbreak and a political standoff that made it difficult for the Palestinian Authority to collect tax revenue in 2020. As COVID-19 waned, economic activity strengthened in 2021 and real GDP grew 7%. It continued in 2022 with real GDP growth of 3.9%. Lower growth is expected for 2024, especially due to the war in Gaza.

Eswatini suffers from extreme poverty and the world’s highest HIV/AIDS prevalence rate, according to the CIA. HIV/AIDS tends to cause a substantial decline in productivity as households lose manpower to the disease. The GDP growth rate for 2022 was 3.9%.

Republic of Congo, in Central Africa, has a population of 5.7 million people, 47% of whom are under the age of 18. While economic activity increased by 1.5% in 2022, it wasn’t enough to reduce the number of people existing in extreme poverty. The country’s oil production makes up about half of its GDP and 80% of exports. GDP is projected at 3.2% in 2024.

Lowest Unemployment Rates

Below are the countries with the world’s 10 lowest unemployment rates at the end of 2022:

• Qatar: 0.1%
• Cambodia: 0.4%
• Niger: 0.5%
• Thailand: 0.9%
• Burundi: 1.0%
• Bahrain: 1.4%
• Chad: 1.4%
• Cuba: 1.4%
• Solomon Islands: 1.5%
• Benin: 1.7%1

The above countries have stunning unemployment rates. All bested the U.S. by a considerable margin at the end of 2022.

Unemployment Rates for the World’s Largest Economies

The unemployment rates for the top 10 largest economies by GDP were predictably low at the end of 2022, with some outliers such as India, France, and Italy.

• United States: 3.6%
• China: 4.9%
• Japan: 2.6%
• Germany: 3.0%
• India: 7.3%
• United Kingdom: 3.6%
• France: 7.4%
• Russian Federation: 4.7%
• Canada: 5.2%
• Italy: 8.1%

Having a low unemployment rate does not mean a country’s economy necessarily is strong. For instance, in 2022 Niger had only 0.5% unemployment and a GDP per capita of $585.4, according to the World Bank. In 2022, Burundi had 1.0% unemployment and a GDP per capita of $259.0.

These countries have low unemployment figures in large part because their economies rely heavily on agriculture, which is labor-intensive but seasonal. Remember that the underemployed are still counted in employment figures. Even Laos, with a relatively healthy GDP per capita of $2,054.4 in 2022, still employed 58% of its workforce in agriculture in 2021.

Of course, it’s possible to have both low unemployment and a rich economy. This combination is seen in Qatar. According to the World Bank, the GDP per capita in Qatar was $87,661.5 in 2022.

That wealth helps its standing in the low unemployment listed above, as a country’s unemployment rate only factors in those actively looking for work. The working-age child of rich parents may feel less pressure to earn money and be more inclined to spend it.

Qatar’s economy is driven by oil and natural gas, hence its extreme wealth. However, it’s been making a sustained push to diversify into technology, marketing, construction, restaurants, and hotels.

The International Labor Organization determined that the global unemployment rate for 2022 was 5.8%. That remains above 2019’s rate of 5.4%. Global unemployment is projected to grow by 1.0% in 2024.

Bottom Line

The majority of the world’s economies suffered during the COVID-19 pandemic, with many countries seeing their unemployment levels increase.

As the world emerged from the pandemic, employment conditions improved. However, the world still faces challenges that include inflation, ongoing global supply chain problems, and a war in Europe that has impacted food supplies around the world.