Do you have to pay income tax on unemployment benefits?

A key element of the CARES Act was the ability for the self-employed to apply for unemployment benefits under the Pandemic Unemployment Assistance (PUA) program. However, what may not be clear to many self-employed people who are receiving unemployment payments, often for the first time in their working lives, is that this income is taxable — freelancers will need to factor this in when making estimated tax payments and calculating their annual income tax obligations.

Another key point to remember about any unemployment payments you may have received is that, depending on where you reside, they may be subject to not only federal income taxes, but taxes at the state and local levels, too. For example, if you are a freelancer living and working in New York, assume you will be paying federal taxes, New York States taxes and, if you live in New York City, city taxes as well. On the plus side, you don’t have to pay Social Security or Medicare taxes on unemployment income as you would for regular freelance income.

There are a few states that exempt unemployment benefits from taxes, so check your federal, state, and local tax liabilities. California, Montana, New Jersey, Oregon, Pennsylvania, and Virginia

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