Is unemployment compensation considered earned income for California EDD purposes?

Wait so California doesn't tax unemployment at all? My tax preparer didn't mention that. Does that mean I don't need to report it on my state return?

Correct - California does not impose state income tax on unemployment compensation. You'll still receive a 1099-G from California EDD and you need to report it federally, but for your CA state return it's excluded from taxable income. Your tax preparer should know this but it's worth double-checking.

this is actually really good to know, i had no idea CA didnt tax UI benefits. learned something today

Ok that makes more sense. So when EDD asks on the weekly cert if I had any earnings, they're only asking about wages from a job, not counting the UI check itself?

Exactly. They want to know if you worked and earned wages that week. Your UI benefit doesn't factor into that question at all. Just report any wages from actual employment honestly.

this tripped me up too when i first started filing weekly certs. i thought i had to report the benefit as income received or something lol

I've literally been trying to call EDD for two weeks about a separate issue and can't get through. Gonna check out that Claimyr link, thanks.

Does Claimyr actually work? Seems too good to be true honestly

It worked for me. I was skeptical too but I was desperate after days of busy signals and disconnected calls. Got connected to an EDD rep within the same day.

seconded, used it last month when my claim went into adjudication and needed answers fast. actually got through

The IRA point is really interesting and something I hadn't thought about. So if I'm only on UI right now I can't contribute to my Roth this year?

For the months you have no earned income, correct - you'd need at least some earned income during the tax year to make IRA contributions. If you find part-time work at any point this year that would restore your ability to contribute up to that amount.

good comprehensive breakdown. the IRA thing catches a lot of people off guard

You're conflating two different concepts and you're not alone in the confusion. 'Taxable income' and 'earned income' are not the same thing. UI benefits ARE taxable at the federal level (you owe federal income tax on them). But they are NOT 'earned income' as defined by the tax code, which specifically means compensation from work. Something can be taxable without being earned income.

ohhhh ok that actually makes sense now. so earned income is specifically from working, but there are other types of taxable income like UI benefits that dont fall under that category. got it

this is exactly the confusion i had too when my accountant brought it up. the terminology really isn't intuitive

This is the summary I needed, thank you. The withholding option through UI Online is something I should probably set up - I didn't realize that was an option.

Yes definitely look into it. Log into UI Online, go to your payment options, and there should be a federal tax withholding election. Better to have it withheld than owe a lump sum when you file.

bookmarking this comment, super helpful

the withholding tip is underrated. i owed money my first year on unemployment because i didn't know this was an option

Yes - for Medi-Cal and CalFresh, unemployment benefits generally DO count as income for eligibility purposes even though it's classified as unearned income. These programs use their own income counting rules that are different from the IRS earned income definition. You should report your UI benefits when applying for or recertifying for those programs.

ugh ok so it can affect my CalFresh amount even if it's not earned income technically. that's frustrating but good to know before i have any issues

Yeah the 'earned income' label is really a tax concept more than a universal government programs concept. Each program has its own rules about what counts toward income limits.

Oh wow I'm glad you said this because I had a similar thought and wasn't 100% sure. So to confirm - you never report your UI benefit payment itself on your weekly certification, right? Only wages from actual work?

correct. the weekly cert is only asking what you earned from actual employment that week. your UI check isn't something you report back to them

i mean it makes logical sense when you think about it but when youre new to the system nothing is obvious

was there a wait even with Claimyr or did you get through right away?

There was some wait but nothing like the endless busy signals and disconnects I was getting on my own. Way more manageable and I didn't have to sit there hitting redial all day.

the busy signal problem is real. ive literally had calls disconnect after 45 min on hold. so demoralizing

Yes good point - I have been doing a tiny bit of freelance design work and I have been reporting it. Wanted to make sure I was doing that right.

Good on you for reporting it. EDD will reduce your weekly benefit by a portion of those earnings rather than cutting you off entirely, so it's always better to report honestly. The formula is a little complicated but basically you keep some of both.

The partial benefit calculation in CA is: your weekly benefit amount minus earnings over $25 (the $25 is a small earnings disregard). So report everything over $25 in a week and your benefit gets adjusted accordingly.

Investment income like dividends and capital gains generally does NOT affect your California EDD weekly benefit amount. EDD is looking at earnings from work when they ask about income on certifications. Passive investment income is not something you'd typically report on your weekly cert. That said, it would still count as income for federal tax purposes on your overall return.

That's a relief honestly. I was worried I'd have to report every little dividend payment. Thanks for clarifying.

Rental income is another one that gets complicated though - there's some nuance depending on whether it's truly passive or if you're actively managing it. Worth checking with EDD directly if that applies to you.

I felt the same way - the EDD website is honestly pretty terrible for actually answering specific questions. That's part of why I started using Claimyr (claimyr.com) - it at least solves the 'can't get through on the phone' part of the problem. Check out the demo at https://youtu.be/JmuwXR7HA10 before you spend another day redialing.

ugh fine ill try it at this point i have nothing to lose

the 30 calls thing is not an exaggeration. ive done that. the hold time situation is genuinely absurd

I appreciate the clear explanation. I feel like this should just be stated clearly somewhere obvious on the EDD website but here we are asking forums.

Ha, yeah the EDD website is not exactly known for plain-English explanations. That's what forums are for I guess.

Fully agree. The IRS publication 525 actually covers this explicitly if anyone wants the official source - it spells out what categories unemployment compensation falls into.

Same! I had been going down a rabbit hole of confusing articles. Sometimes a forum thread answers the question better than any official source.

especially when you have a specific CA situation because a lot of the generic articles don't mention the California state tax exemption on UI

Good to know - so even when I go back to work part time, I should keep filing weekly certs as long as I might still be eligible for any partial benefit?

Yes exactly. Keep filing until EDD determines you're no longer eligible. Stopping your certifications abruptly when you still have eligible weeks can cause issues.

And when you do go back to work full time, your last certification week is the week before you started full time employment. Close it out properly rather than just stopping.

this is genuinely useful info that a lot of people don't know until they've already made the mistake

The EDD website has gotten better over the years but it's still pretty bad at answering nuanced questions like this. Community knowledge fills the gap.

right? like official sources are great for basic stuff but the specific scenarios and edge cases are where forums shine

This is actually a nuanced situation. Pension payments can reduce UI benefits in California depending on whether the employer contributed to the pension. 401k distributions are generally treated differently from pension payments. This is one where I'd genuinely recommend he call EDD directly to get a clear answer for his specific situation rather than relying on forum advice.

Yeah that makes sense. I'll tell him to call. Though based on this thread it sounds like getting through to EDD is its own challenge...

Tell him about Claimyr if the regular phone line isn't working - claimyr.com. Got me through to an EDD rep when I had a complicated question about my specific claim situation. Some things really do need a real person.

The pension/401k question genuinely varies by situation so yes, an actual EDD rep is the right move for that one.

Correct on both counts. The 1099-G from California EDD shows Box 1 which is your total unemployment compensation paid during the year. That Box 1 amount goes on your federal 1040. For your California state return, unemployment compensation is excluded from CA gross income, so you don't pay state tax on it.

Perfect, that's exactly what I needed to confirm. My tax software was flagging something and I wasn't sure if I had entered it correctly.

Most tax software handles this automatically once you enter the 1099-G - it should auto-populate the federal line and then exclude it on the state side. If it's not doing that you may need to check that you've selected CA as your state.

Also double check box 4 on your 1099-G - that shows any federal tax already withheld. Make sure you're including that withholding credit on your federal return or you're leaving money on the table.

Wait I'm the OP and I didn't post that update haha - but glad someone else had the same question resolved! For what it's worth I also got my answer sorted out. Between this thread and finally getting through to an EDD rep (used Claimyr after seeing it mentioned here) I feel like I actually understand how my UI benefits interact with my taxes now.

Oh sorry I meant to clarify I had the same question independently! Small world. Glad you got through to EDD too.

This is how these threads should go - question gets answered thoroughly, people update with confirmation. Good closure.