Lesson 3 of 7
Unemployment Compensation
Marcus sat down looking a little defeated.
“I got laid off from the warehouse in April,” he said. “Collected unemployment for five months. Then I got the new job in September.”
“Did you have taxes withheld from your unemployment?” Veronica asked.
“No. Nobody told me I could do that.”
Veronica nodded. She’d heard this before. “Unemployment compensation is taxable income,” she said. “Most people don’t know that. You should have received a 1099-G from the state. Did you bring it?”
“I didn’t know I needed it,” Marcus said.
“Let’s pull it up. Florida uses CONNECT — you can access the 1099-G online.”
Unemployment compensation is taxable income at the federal level. This surprises almost every client who received it. They were already going through a hard time financially, and now they find out the benefits they collected are included in their taxable income. Your job is to explain it clearly, retrieve the form, and report it accurately.
💬 Marcus Is Surprised
🚗
Marcus
Wait — unemployment is taxable? I thought that was like assistance money. I didn’t pay taxes on it.
V
Veronica
A lot of people are surprised by this. Unemployment compensation is fully taxable at the federal level. It replaced wages you would have earned, so the IRS treats it the same way.
🚗
Marcus
Nobody told me that when I filed the claim.
V
Veronica
I know. The state DEO system does give you the option to withhold 10% for federal taxes when you set up the claim, but most people don’t select it because they’re not aware it’s taxable. Going forward, that’s the move.
🚗
Marcus
So how much am I going to owe on it?
V
Veronica
Let me enter your W-2 and the 1099-G first and we’ll calculate the exact number. But I want to walk you through what we’re seeing before I show you the total.
💬 Marcus Is Surprised
🚗
Marcus
Wait — unemployment is taxable? I thought that was like assistance money. I didn’t pay taxes on it.
V
Veronica
A lot of people are surprised by this. Unemployment compensation is fully taxable at the federal level. It replaced wages you would have earned, so the IRS treats it the same way.
🚗
Marcus
Nobody told me that when I filed the claim.
V
Veronica
I know. The state DEO system does give you the option to withhold 10% for federal taxes when you set up the claim, but most people don’t select it because they’re not aware it’s taxable. Going forward, that’s the move.
🚗
Marcus
So how much am I going to owe on it?
V
Veronica
Let me enter your W-2 and the 1099-G first and we’ll calculate the exact number. But I want to walk you through what we’re seeing before I show you the total.
💬 Marcus Is Surprised
🚗
Marcus
Wait — unemployment is taxable? I thought that was like assistance money. I didn’t pay taxes on it.
V
Veronica
A lot of people are surprised by this. Unemployment compensation is fully taxable at the federal level. It replaced wages you would have earned, so the IRS treats it the same way.
🚗
Marcus
Nobody told me that when I filed the claim.
V
Veronica
I know. The state DEO system does give you the option to withhold 10% for federal taxes when you set up the claim, but most people don’t select it because they’re not aware it’s taxable. Going forward, that’s the move.
🚗
Marcus
So how much am I going to owe on it?
V
Veronica
Let me enter your W-2 and the 1099-G first and we’ll calculate the exact number. But I want to walk you through what we’re seeing before I show you the total.
Form 1099-G — What It Is
Form 1099-G, Certain Government Payments, is the form issued by state unemployment agencies reporting the total unemployment compensation paid during the year. The key boxes:
Box 1 — Unemployment Compensation. The total amount received. This is the taxable income. It goes on Schedule 1, Line 7 of the 1040.
Box 4 — Federal Income Tax Withheld. If the client opted for withholding during their unemployment claim (they could request 10% withheld), this box will be populated. It’s a credit on the return — same as W-2 withholding.
Box 11 — State Income Tax Withheld. If applicable. Florida has no state income tax, so for most of your local clients this will be blank.
💬 Marcus and the Missing 1099-G
V
Veronica
The 1099-G from Florida DEO should be available through the CONNECT portal online. Do you still have access?
🚗
Marcus
Yeah, I think so. Let me log in.
V
Veronica
While you do that — do you remember roughly how much you collected total?
🚗
Marcus
Maybe $12,000 over those five months.
V
Veronica
And did you choose to have any taxes withheld when you set up the claim?
🚗
Marcus
No. I didn’t know I could.
V
Veronica
That’s common. Without withholding, the full $12,000 will be added to your taxable income. Combined with your W-2 from the new job, this might generate a balance due. Let’s see the exact number first.
🚗
Marcus
There it is — $11,840.
V
Veronica
Perfect. I’ll enter that from the 1099-G. Box 4 shows zero withholding, right?
Why Clients Are Surprised
Almost every client who received unemployment benefits believes it’s not taxable. They’ve heard it’s “government assistance” and assume it’s exempt. It isn’t. Unemployment compensation is fully taxable at the federal level.
Here’s how to explain it clearly: “Unemployment compensation replaced wages you would have earned. The IRS treats it the same way — as income that needs to be reported. The good news is that next time, you can request 10% withheld so this doesn’t create a surprise at tax time.”
✅ Quick Check
Marcus received $11,840 in unemployment compensation with $0 withheld. Is this taxable?
Yes. 100% of unemployment compensation is taxable federal income. It goes on Schedule 1 and adds to his adjusted gross income. With no withholding, he owes tax on the full amount.
Florida has no state income tax, so there is no state-level obligation for Florida residents.
Getting the Form When the Client Didn’t Bring It
Clients frequently don’t bring the 1099-G because they don’t realize it exists or don’t think it matters. Here’s how to retrieve it:
Florida: Access through Florida DEO CONNECT portal at connect.myflorida.com. Under “My 1099-G.” The client needs their CONNECT login.
Other states: Each state has its own portal. Most can access it online with their unemployment account credentials.
Federal: Some federal programs (Pandemic Unemployment Assistance, etc.) used separate portals. If a client received federal unemployment, verify which agency paid it.
💬 Veronica Asks Ralph About a State Return
V
Veronica
Ralph — Marcus had unemployment in Florida and now has a job in Georgia. Does he need to file a Georgia return?
RM
Ralph
The unemployment was paid by Florida, right? Then it’s Florida income for the period he lived here. The Georgia question is about the W-2 income he earned there — and whether he was a Georgia resident or just worked there. What does his W-2 show for state?
V
Veronica
Georgia wages in Box 16 and Georgia withholding in Box 17.
RM
Ralph
Then he probably needs a Georgia non-resident return. That’s beyond today’s lesson — but this is a great example of why we ask about where the client lived and worked before we start entering anything.
💡 Stop & Think
A client tells Veronica she received unemployment benefits for three months but “only got a little bit so it probably doesn’t need to go on the return.” What does Veronica need to do?
Answer:
Ask the client to pull up the 1099-G from the state portal and get the exact number. There is no minimum threshold for reporting unemployment compensation — all of it is taxable regardless of the amount. Even $800 in unemployment goes on the return.
🏢
🏢 Real Office Scenario
A client received $18,400 in unemployment in 2025. She had 10% withheld, so Box 4 shows $1,840. Her W-2 from a job she started in November shows $8,200 in wages and $620 in federal withholding. Total income: $26,600. Total withholding: $2,460. After standard deduction and calculating tax, the $1,840 withheld from unemployment and $620 from the W-2 may together cover most or all of her tax bill. The withholding election she made when filing her unemployment claim made a real difference.
📍
Pro Tip — Always Ask About Unemployment
Add it to your standard intake questions: “Did you receive unemployment benefits at any point during the year?” Clients who worked all year won’t have it. But clients who changed jobs, were laid off, or had a gap in employment often did — and they almost never volunteer the information because they don’t realize it matters.
⚠️
⚠️ Common Beginner Mistake
Forgetting to ask about unemployment when a client had a job gap. If a client shows a W-2 for only part of the year, or mentions they were laid off or between jobs, always ask directly about unemployment benefits. A missing 1099-G creates an underreported income situation.
⚠️
⚠️ Common Beginner Mistake
Not asking about unemployment during intake when a client has a gap in employment. If the W-2 only covers part of the year or the client mentions being laid off, always ask: “Did you collect unemployment at any point?” Clients almost never volunteer this information because they don’t realize it’s taxable.
💬 Setting Up Withholding for Next Year
🚗
Marcus
How do I make sure this doesn’t happen again if I ever go on unemployment?
V
Veronica
When you file your initial claim with Florida DEO, there’s an option to have 10% federal income tax withheld from each benefit payment. It’s called a withholding election. If you select it, the state sends that money to the IRS automatically. You end up with a smaller weekly check but no surprise in April.
🚗
Marcus
I wish I’d known that.
V
Veronica
Most people don’t. I tell every client who had unemployment: if it ever happens again, choose withholding on day one.
⚠️
⚠️ Common Beginner Mistake
Not asking about unemployment during intake when a client has a gap in employment. If the W-2 only covers part of the year or the client mentions being laid off, always ask: “Did you collect unemployment at any point?” Clients almost never volunteer this information because they don’t realize it’s taxable.
💬 Setting Up Withholding for Next Year
🚗
Marcus
How do I make sure this doesn’t happen again if I ever go on unemployment?
V
Veronica
When you file your initial claim with Florida DEO, there’s an option to have 10% federal income tax withheld from each benefit payment. It’s called a withholding election. If you select it, the state sends that money to the IRS automatically. You end up with a smaller weekly check but no surprise in April.
🚗
Marcus
I wish I’d known that.
V
Veronica
Most people don’t. I tell every client who had unemployment: if it ever happens again, choose withholding on day one.
⚠️
⚠️ Common Beginner Mistake
Not asking about unemployment during intake when a client has a gap in employment. If the W-2 only covers part of the year or the client mentions being laid off, always ask: “Did you collect unemployment at any point?” Clients almost never volunteer this information because they don’t realize it’s taxable.
💬 Setting Up Withholding for Next Year
🚗
Marcus
How do I make sure this doesn’t happen again if I ever go on unemployment?
V
Veronica
When you file your initial claim with Florida DEO, there’s an option to have 10% federal income tax withheld from each benefit payment. It’s called a withholding election. If you select it, the state sends that money to the IRS automatically. You end up with a smaller weekly check but no surprise in April.
🚗
Marcus
I wish I’d known that.
V
Veronica
Most people don’t. I tell every client who had unemployment: if it ever happens again, choose withholding on day one.
1099-GCertain Government Payments. Reports unemployment compensation, state tax refunds, and other government payments.
Unemployment CompensationBenefits paid by the state when someone loses their job through no fault of their own. Fully taxable federally.
Schedule 1Additional Income and Adjustments. Unemployment compensation is reported on Schedule 1 Line 7.
Withholding ElectionThe option to have 10% federal income tax withheld from unemployment benefit payments. Prevents a large balance due at filing.
CONNECTFlorida's online unemployment system at connect.myflorida.com. Where Florida residents access their 1099-G.
📋 From the Desk of Ralph Martinez
Unemployment is the income type that makes clients feel worst. They lost their job, they were struggling, and now they find out they owe tax on the help they received. How you explain this matters. Stay matter-of-fact, stay warm, and immediately follow with the withholding election advice for next time. Give them something actionable.
— Ralph Martinez · Ruskin, FL · Est. 2001