Is unemployment considered earned income for California EDD tax purposes?

Wait so California doesn't tax it at all? That's actually a relief. But I still need to pay federal taxes on the full amount I received?

Correct. California is one of the few states that exempts unemployment from state income tax. But the IRS absolutely counts it as taxable income federally. If you didn't opt into voluntary withholding through EDD (the 10% federal withholding option), you may owe when you file.

This is really helpful info, I had no idea California didn't tax UI benefits. I've been stressing about both federal AND state taxes this whole time.

Oh wow I hadn't even thought about the EITC angle. I did work most of the year before getting laid off so I should have some actual earned income to count at least.

This is such an important point. So many people file expecting to get EITC based on their total income including UI and then get letters from the IRS later. The IRS is very strict about what qualifies as earned income.

does this also apply to pandemic unemployment or is that different now

All pandemic-era programs like PUA and PEUC have ended. Current California EDD unemployment benefits work the same way — taxable federally, exempt from California state tax, and NOT earned income for EITC purposes.

My 1099-G amount looks right but I've been trying to call EDD anyway to ask about setting up withholding going forward and I can never get through. Might try this.

claimyr actually worked for me too when I needed to fix an address issue on my account. the regular EDD phone line is basically impossible

does it work for asking tax questions specifically or just claim stuff

I used it for a 1099-G issue which is technically tax-related. The agent I got was able to pull up my payment history and confirm the correct total. They can see your full account so yes it works for that kind of question.

That's terrifying. I'm planning to use free tax software this year. I'll make sure to double check where it puts the 1099-G amount.

most of the major tax software programs handle the 1099-G correctly now but you're right to double check. always verify the category before submitting.

This is exactly the breakdown I needed thank you. So if Box 4 is empty I definitely need to calculate what I might owe federally and be prepared to pay it.

You can also request withholding going forward if you're still receiving benefits. EDD lets you elect 10% federal withholding through your UI Online account under payment options. Won't help for the past but at least reduces future tax liability.

how do you actually set that up? I looked in my UI online account and couldn't find it

Log into UI Online, go to your profile settings, look for 'Federal Income Tax Withholding' option. You can elect or cancel the 10% withholding from there. The change takes effect on future payments.

Hadn't thought about that either. Good to know for long term planning. Thankfully I'm only expecting to be on UI for a couple more months hopefully.

yeah this is a real thing. extended periods of unemployment can affect future Social Security benefits since those months contribute zero to your earnings record

Yeah that was confusing me too. The two-part answer makes it much clearer.

same confusion here. I actually had a coworker tell me unemployment is completely tax free and I believed them for like two months lol

I haven't had any overpayment issues thankfully but good to know this exists as a consideration.

This is accurate and important. Cross-year repayments are genuinely complicated. If the repayment amount is over $3,000 you may qualify for the Section 1341 claim of right adjustment which can be more beneficial than a standard deduction.

ugh I got an overpayment notice from EDD this year for benefits from last year. so this might apply to me. do I need an accountant for this?

For the cross-year overpayment and claim of right rules, honestly yes, consulting a tax professional is probably worth it especially if the amounts are significant. The rules are genuinely complex.

Yes! For Covered California and ACA premium tax credits, unemployment IS counted as income — it's included in your Modified Adjusted Gross Income (MAGI) for subsidy calculations. So while it's not 'earned income' for EITC or IRA purposes, it absolutely counts toward your household income for health insurance subsidy eligibility. Important distinction.

oh wow okay. so I need to make sure I reported my UI income to Covered California so my subsidy is calculated correctly. I had no idea this was separate from the earned income question.

Yes this is super important. If you underreported income to Covered California and received more subsidy than you qualified for, you'll have to pay the difference back when you file your taxes. Always report changes in income including starting or stopping UI benefits.

Oh I did move earlier this year. I need to make sure my address is updated in EDD's system. I actually haven't logged in for a few weeks since my payments have been coming through fine.

Update your address in UI Online ASAP if you moved. Also just access the 1099-G through UI Online directly — it's actually easier than waiting for the mail version.

Yes absolutely. Any wages or self-employment income you earn while receiving UI must be reported to EDD during your weekly certifications. Failing to report it is considered fraud. And yes, that gig income IS earned income for tax purposes while your UI is not. So you'd potentially have both types of income — earned (gig work) and unearned (UI) — on your return. Report all of it honestly both to EDD weekly and on your tax return.

okay good I have been reporting it every week I just wanted to confirm it's handled correctly on taxes too. so I'd get a 1099 from the gig platform AND a 1099-G from EDD and report both separately

Exactly right. 1099-NEC or 1099-K from the gig platform goes on Schedule C as self-employment income. 1099-G from EDD goes on Schedule 1 as unemployment compensation. Both taxable federally, both reported separately.

And don't forget you'll owe self-employment tax on the gig income too (the 15.3% for Social Security and Medicare) since no employer is withholding that. Factor that into your estimated tax calculations.

I mentioned this earlier in the thread but Claimyr at claimyr.com genuinely helped me get through to EDD after I was stuck in the same endless loop you're describing. There's a video at https://youtu.be/JmuwXR7HA10 that shows how it works. For adjudication issues specifically you really do need a live agent, you can't resolve those through UI Online alone.

I'll check out that video. At this point I'll try anything. Been waiting 5 weeks with my claim stuck and no payment and no explanation.

adjudication delays are brutal right now. definitely need to actually speak to someone to find out what's holding it up. hope you get through soon

This is the clearest summary honestly. Not earned, but still federally taxable. Got it.

yeah this is how I finally got it to click in my head too

Great question. 401k contributions through an employer are based on your compensation from that employer — so if you're not working you won't have access to make 401k contributions through an employer plan during your unemployment period. For traditional or Roth IRA contributions, those require earned income. Since UI is not earned income, you cannot make IRA contributions during a period where UI is your only income. You'd need to have at least some actual wages from the year to contribute to an IRA.

dang, so if I was laid off in January and haven't worked at all this year and only received UI, I can't contribute to my Roth IRA for this year at all?

Correct. Zero earned income means zero IRA contribution eligibility for that tax year. If you return to work before December 31st even briefly, those wages would restore your ability to contribute up to the amount earned.

This is one of those things that makes prolonged unemployment more financially damaging than people realize. Not just the reduced income but also losing the ability to contribute to retirement accounts for that year.

Same, this thread answered so many questions I didn't even know I had when I first posted. Thanks everyone.

Good luck with your return! Make sure to grab your 1099-G from UI Online rather than waiting for the mail version — it's usually available earlier electronically.

Good call. I'll definitely make sure the 1099-G gets entered in its own separate section and not added to my W-2 wages.

Most tax software has a specific 1099-G entry section that auto-populates the right line on your return. Just make sure you're entering it there and not in the income section that asks about W-2s.

I made this exact mistake two years ago and got a CP2000 notice from the IRS. It was a nightmare to sort out. Please enter your 1099-G in the correct section.

Going to do this today. Even though I'll still owe for the past months, at least going forward I won't be adding to the problem.

honestly more people should do this. the 'i'll deal with it at tax time' attitude leads to really unpleasant surprises in April

Correct — rental income is generally considered passive income, not earned income. It's taxable (goes on Schedule E of your federal return) but does not qualify as earned income for EITC or IRA contribution purposes. So you'd have two types of non-earned income: UI compensation and rental income. Both taxable federally, neither counts as earned income.

okay great, that's what I suspected. so I definitely cannot use either of those toward IRA contributions for the year

Right. And depending on your total income including both the UI and rental income, you may be in a higher tax bracket than you expect, so definitely set aside funds for your federal return or make estimated tax payments if you haven't already.

Same honestly. EDD doesn't exactly advertise the tax implications front and center when you're applying for benefits.

EDD does send informational materials that mention the tax implications but you're right that it's easy to miss. The option to elect withholding is available from the beginning but many people skip past it. Hopefully this thread helps people catch it before tax time.

I just logged in and set up the 10% federal withholding. wish I had done it 4 months ago but better late than never I guess

IRS Free File is what I was planning to use. Good to know it should handle the 1099-G correctly.

VITA is great if you can find a location near you. I used it two years ago when my tax situation got complicated and the volunteers were genuinely knowledgeable.

didn't know about either of these, definitely going to look into the free options