TL;DR
- ✅ Unemployment is taxable. Ask for 10% withholding (Form W-4V) or plan to pay later
- ✅ Severance is usually withheld at a flat 22%, which may not match your real rate
- ✅ A new W-4 at your next job should account for the income you already received
- ✅ A part-year of work often means a refund, not a bill
Unemployment benefits
Unemployment compensation is taxable on your federal return, and most states tax it as well. No Social Security or Medicare tax is taken from it. You can ask your state agency to withhold 10 percent for federal tax. If you do not, the whole amount arrives untaxed and the bill comes due at filing time. Some people choose not to withhold and instead save the tax, which works if you set money aside; the safe harbor rules explain how much you need to have paid to avoid a penalty.
Severance pay
Severance is supplemental wages. When it is paid on its own, employers often withhold a flat 22 percent federal rate, which can be too much or too little. It is too little if the extra income pushes you into a higher bracket, and too much if your income for the year ends up low. Either way, your final tax is figured on your return, so treat the withholding as an estimate.
Starting your next job
You had a gap and little other income
Your new employer withholds as if you will earn that pay all year, so you may over-withhold. A refund is likely; you can leave your W-4 at the defaults or reduce withholding if you want more in each check.
You received unemployment or severance earlier this year
That income had little or no tax withheld. Add the expected tax per paycheck in Step 4(c) or enter the amount in Step 4(a). The Step 4(c) guide shows the formula.
You have two jobs now, or a working spouse
Complete Step 2. See the two-jobs guide.
You are still looking for work
File a new W-4 as soon as you start. Until then, nothing is withheld on unemployment unless you asked for it.
Plan your W-4 for the rest of the year — free
Enter your new pay and situation to see what to write in Steps 2 to 4.
Open the W-4 Calculator →⚠️ Check your year-to-date withholding
Add up federal tax withheld on your final pay stubs, severance and unemployment, then compare it with your expected tax. If you are short, use the Step 4(c) guide to size an extra amount, and read how to stop owing taxes.
New employer paperwork basics are in the new job W-4 guide. If you are freelancing while you search, see W-4 with side income, and for a short-term gig, the seasonal job guide.
Frequently asked questions
Is unemployment taxable?
Yes. Unemployment compensation is taxable federal income, and most states tax it too. It is not subject to Social Security or Medicare tax. You will get a Form 1099-G reporting what you received.
Can I have tax withheld from unemployment?
Yes. You can ask for 10 percent federal withholding on Form W-4V or through your state's unemployment portal. If you do not, nothing is withheld and you may owe in April.
How is severance pay taxed?
Severance is supplemental wages. If it is paid separately, employers commonly withhold a flat 22 percent federal rate. If it is added to a regular paycheck, normal withholding applies. Your actual tax is settled when you file.
Should I change my W-4 when I start a new job after a layoff?
Fill out a new one at the new employer. If you received unemployment or severance earlier in the year, add the tax on it in Step 4(c) or use Step 4(a). If you had a long gap, the new job may over-withhold because payroll assumes a full year of pay.
I only worked part of the year. Will I get a refund?
Often yes. Withholding is figured as if you earn your pay all year, so part-year workers frequently have more withheld than their actual tax. File a return to get the difference back.
Key terms in this article
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