Reminder: Massachusetts UI is Taxable Income

by | Nov 10, 2020

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If you received, or are currently receiving unemployment compensation, it is important to know that unemployment compensation is taxable.

By law, unemployment benefits must be reported on your federal and state income tax returns for the tax year in which it was received. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a result of the COVID-19 pandemic.

Reporting unemployment compensation
In January 2021, unemployment benefit recipients should receive a Form 1099-GCertain Government Payments, showing the amount of unemployment compensation received during 2020 and any tax withheld. Report this information, along with other income, on your 2020 federal and state tax returns.

How can you avoid owing taxes on this income when you file your income tax return next year?  

If you didn’t choose to have Massachusetts state tax withheld from your unemployment compensation or you didn’t have an option to have state tax withholding, you can make estimated tax payments through the Massachusetts Department of Revenue portal. The payment for the first two quarters of 2020 was due on July 15, 2020 and the third quarter was due September 15, 2020. Although those dates have passed, you can make a payment now to start to catch up. The fourth quarter payment is due on January 15, 2021.   

You should pay the tax that will be due on your 2020 unemployment compensation by January 15, 2021. If you can’t pay the full amount, any amount you pay before your 2020 taxes are due in April 2021 will help reduce what you owe and reduce any penalty that might be charged. Generally, you can expect to owe about 5% in Massachusetts tax on your unemployment compensation. 

Where can I find out more?

You can find out more about unemployment compensation from the Department of Unemployment Assistance (DUA) at Mass.gov/dua. For help calculating your estimated tax payment amount, check out DOR’s estimated tax calculator or contact DOR at 617-887-6367.