Are unemployment benefits taxed in California? What I wish I knew before filing

Wait so California taxes it too?? I thought I read somewhere that California doesn't tax unemployment. Now I'm even more confused.

She's actually partially wrong on the California part. California does NOT tax unemployment benefits at the state level - it's one of the few states that exempts UI payments from state income tax. So you only need to worry about federal taxes, not California state taxes. The 7% state withholding she mentioned isn't something California EDD does because there's no state tax owed.

Oh you're totally right, I misspoke on the California portion. My bad OP - California unemployment benefits are NOT subject to California state income tax. Only federal. So you just need to worry about the 10% federal withholding option if you want to set something aside.

The 1099-G - ok that's the form I need to look for. Does California EDD mail it or do I get it online?

Both actually. They post it to your UI Online account usually by end of January and also mail a paper copy. Definitely check UI Online first since mail can be slow. You can also access past 1099-Gs through your account if you need them.

Just jumping in - make sure your mailing address in UI Online is current before January rolls around. I missed my 1099-G one year because I'd moved and forgot to update it with California EDD. Had to request a duplicate which was a whole thing.

Right?? The intake process asks so many questions but somehow skips the 'hey by the way you might owe taxes on this' part

exactly. and then you're already stressed about money and now you gotta worry about a tax bill on top of it

Oh interesting, I've been trying to reach California EDD to ask about this exact thing and keep getting the 'call volume too high' message. Might look into this.

Claimyr worked for me too when I needed to talk to someone about my claim. The hold situation with California EDD is absolutely brutal.

does it actually work or is it one of those things that sounds good but doesn't deliver

This breakdown is incredibly helpful. The $270 number doesn't seem as scary as I was imagining. I'll get the withholding set up today.

Good breakdown. One thing to add - if you have other income sources in the year (even partial weeks worked before the layoff), that can push you into a higher bracket so the 10% withholding might not be enough to fully cover it. Worth keeping that in mind.

Excellent point. If you had W-2 income earlier in the year from the job you got laid off from, that income combines with your UI for the total federal tax calculation. California EDD only withholds the flat 10% which may undershoot your actual rate depending on total annual income.

That's exactly what I'm afraid of - expecting a refund and then getting a bill instead. Thanks for the heads up.

Yeah it's a rude awakening. The withholding option in UI Online literally takes 2 minutes to set up. Just wish I'd known about it sooner.

same happened to me owed like $600 and i was NOT prepared for that at all

This is a really common misconception. UI benefits were temporarily made federally tax-free during part of 2020 as a COVID measure (up to $10,200 was excluded). That exemption ended and has not been renewed. Currently unemployment benefits are fully subject to federal income tax.

ohhh ok that explains it probably where that idea came from

Yes the 2020 exclusion confuses a lot of people. The regular rules are back in effect - federal taxable, California state exempt.

Found it! It's under 'Profile' then 'Tax Withholding Preferences' - just enabled 10% federal. Thanks!

Perfect. You'll see it reflected starting with your next payment.

This is a crucial clarification. People sometimes see the 1099-G amount and think they already paid taxes on whatever is shown. Important to understand how the form is structured.

Ok that makes total sense now that you explain it. So it works basically the same as a regular paycheck where the gross is reported but the withholding is credited.

Exactly right. Same concept. Your tax software will handle it automatically as long as you enter both the Box 1 income amount and the Box 4 withholding amount from your 1099-G.

Deep breath - at $380/week if you've been collecting since March that's roughly 8 months so maybe 32 weeks, around $12,160 in total benefits. At 10% federal that would be approximately $1,216 owed. That's manageable and you can still set up withholding now to reduce the damage for remaining weeks.

Ok when you put actual numbers to it it's less terrifying than my brain was making it. Starting withholding today.

Also consider making one or two IRS estimated tax payments before the end of the year if you're really worried. You can pay directly through IRS.gov. It won't eliminate the April bill entirely but it reduces what you'll owe at filing.

Yes you can turn it off and on through UI Online whenever you want. It's not locked in. Though I'd recommend keeping it on if at all possible since the tax bill at the end of the year is worse than the weekly reduction.

ok good to know that its not permanent

Really good to know, thank you. Hopefully the withholding going forward covers most of it but it's reassuring to know there are options.

IRS payment plans saved me one year when i got hit with an unexpected bill. the online setup is pretty straightforward

Good call - I did get two weeks of severance so that's also in the mix. I'll make sure to account for that when filing.

yeah severance usually comes with taxes already withheld by the employer but always double check the paperwork they gave you

I ended up trying this and it actually worked. Got connected after way less time than I ever managed calling on my own. Asked about my withholding options and the agent was actually helpful.

ok I'm gonna try it I've been trying to call EDD for two weeks about a different issue and can never get through

Great point. California EDD issues one 1099-G per calendar year per claim. If your benefit year spans two calendar years you'll have two separate tax documents.

Noted - my claim started in February so it's all 2025 for me but that's useful context for others.

100% agree. The 10% withholding option at least makes it manageable but it does reduce payments that people genuinely depend on to survive. Not a great system.

The logic is that UI replaces wages, which are taxable, so it gets treated similarly. But you're right that the practical impact on people who are already financially stressed is rough. California at least had the sense to exempt it at the state level.

right at least california doesnt pile on at the state level too

Yes you're legally required to report all unemployment income on your federal return regardless of whether you received a 1099-G. If you didn't get one you can access it through UI Online or request a duplicate from California EDD. Never skip reporting income just because the form didn't arrive.

ok good to know, ill check ui online first

This should be pinned honestly. Would've saved me a lot of stress if I'd seen something like this when I first filed.

Agreed, this is a question that comes up constantly and the answer is genuinely confusing because of the federal vs state difference.

Adding: also keep records of all your weekly certifications and payment history in UI Online. Makes tax time way smoother if you can cross-reference against your 1099-G.

Glad it worked out. The UI Online interface isn't super intuitive but once you know where to find things it's manageable.

Good outcome! And remember if you ever have questions that require actually talking to a California EDD agent, claimyr.com is there for when the phone lines are impossible. The video at https://youtu.be/JmuwXR7HA10 shows exactly how it works.

nice update!! glad you got it sorted before too many weeks had gone by