Taxability of Benefits

Unemployment compensation is subject to federal income tax and exempt from Montana income tax. This includes benefits received under regular Unemployment Insurance, any special unemployment compensations authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the Lost Wages Assistance program.

The Department of Labor & Industry is unable to provide tax advice. If you have additional questions concerning your tax situation, we recommend that you consult a tax advisor.

Regular UI
For recipients of regular Unemployment Insurance, claimants can opt to have 10% withheld for their federal tax liability. Regular UI claimants can select or change their withholding preference in their MontanaWorks by accessing the “Tax Withholding” tile on their MontanaWorks dashboard.

PUA and LWA
The option to have taxes withheld was not available for Pandemic Unemployment Assistance (PUA) and Lost Wages Assistance (LWA) benefits.

Income Tax Reporting
In January 2021, claimants will receive an IRS 1099-G form from the Montana Department of Labor & Industry. It will show the amount of unemployment compensation received during 2020 and, if applicable, any federal income tax withheld. Please verify your address on file is correct, so you receive your 1099-G promptly.

For regular UI, a claimant will have the option of downloading the 1099-G in your MontanaWorks account. 1099-Gs from 2019 or before are not available. PUA claimants who have opted for electronic responses will receive their 1099-G by email along with downloading instructions.

Recipients who return to work before the end of the year can use the IRS Tax Withholding Estimator to ensure they are having enough tax taken out of their pay. https://www.irs.gov/individuals/tax-withholding-estimator This can help workers avoid or lessen their year-end tax bill or estimate the refund they want. If you receive a bill for an overpayment of UI or PUA benefits, you will need to report that information on your taxes. Please watch your mail for direction on how overpayments and repayments should be reported. For additional questions, please contact the Overpayment Unit at (406) 444-5434.

For regular UI claimants, access the “Tax Withholding” tile on your MontanaWorks dashboard. You have the choice to select “I want federal income tax withheld from my unemployment compensation at a rate of 10% each payment.” PUA claimants do not have the option of having tax withheld.
Last updated 09/15/20

For regular UI claimants, access the “Tax Withholding” tile on your MontanaWorks dashboard. You have the choice to update your withholding status. PUA claimants do not have the option of having tax withheld.
Last updated 09/15/20

The Lost Wages Assistance program was a separate program that processed funding independent of regular UI or PUA benefits. Therefore, every eligible beneficiary received the full, flat $400 weekly payment.
Last updated 09/15/20

You may have changed your withholding status at some point while you were receiving benefits. Many claimants switch back and forth between having taxes withheld.
Last updated 09/15/20

Yes. Unemployment benefits are considered compensation and subject to state and federal taxes. This includes benefits received under regular Unemployment Insurance, any special unemployment compensations authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the Lost Wages Assistance program.
Last updated 09/15/20

You will receive Form 1099-G from DLI that will show the total amount of unemployment income you need to report.
Last updated 09/15/20

No later than January 31, you will be mailed an IRS Form 1099-G showing the total benefits paid to you for the prior year and the federal income taxes withheld. It will be sent to your last known address, so keep your address current with the Montana Department of Labor & Industry. Form 1099-G will also be available in your MontanaWorks account by this date.
Last updated 09/15/20

DLI reports the total amount of unemployment compensation paid to you and others on your behalf for the year, including any Child Support and taxes, to the IRS even if an overpayment was later established. You are responsible for deducting any cash repayments you have sent to the Unemployment Insurance Division towards the overpayment. The net result is the total amount of unemployment compensation received. Refer to instructions in your Form 1040 instruction booklet.
Last updated 09/22/20

If you repaid any of your overpayment in 2020, subtract the amount you repaid from the total amount received as shown on your 1099-G. Enter the result on the appropriate line of your 1040 tax form.
Last updated 09/22/20

 

IRS Notice on Taxability of Unemployment Benefits

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