General Rules

Unemployment Benefits:
Unemployment compensation represents benefits received by laid-off employees. Generally, such compensation is included in both federal and Massachusetts gross income in the year received.

Types of Unemployment Compensation:
Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state.

Form 1099-G - Certain Government Payments:
Form 1099-Gs are issued giving the full amount of unemployment benefits received during the year.

Withholding:
Taxpayers may request to have Massachusetts taxes withheld by the Department of Unemployment Assistance (DUA), formerly the Division of Employment and Training (DET). Those who choose not to have state taxes withheld, may choose to pay estimated tax payments on this income.

DOR and DUA Match:
DOR routinely matches the amounts in Mass Form 1, Line 8a or 1-NR/PY, Line 10a with files from the Department of Unemployment Assistance (DUA).

Partial Exclusion of Unemployment Compensation:
For federal income tax purposes, pursuant to I.R.C. § 85, individuals must include in gross income any unemployment compensation received under the laws of the U.S. or any state. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 or "ARRA") added new I.R.C. § 85(c) whereby up to $2,400 of unemployment compensation benefits received in 2009 are excluded from the gross income of the recipient.

For personal income tax purposes, Massachusetts generally follows the provisions of the Code as of January 1, 2005, with certain exceptions. Since I.R.C. § 85 is not one of the Code sections included as an exception, Massachusetts follows I.R.C. § 85 as amended and in effect on January 1, 2005 and does not adopt the new § 85(c) provision allowing an exclusion from gross income for up to $2,400 of unemployment compensation benefits received in 2011. Thus, for Massachusetts personal income tax purposes, an individual must include in gross income the entire amount of unemployment compensation received in 2011.

Repayment of Unemployment Compensation:
 If a taxpayer repays some or all of the unemployment compensation in the same year that the amount is received, the repaid amount should be subtracted from the total amount received and the difference is the amount to be included in gross income. This would occur when there is an overlap period where a taxpayer is still receiving unemployment even though he or she is now employed.

If repayment occurs in a subsequent year, the taxpayer may take a deduction provided a tax was paid on the income in the year received because he believed he had a right to it. The deduction must be taken in the year of repayment. If the taxpayer has no income against which to take the deduction, the amount may not be used in a later year.

For Claim of Right

For Repayment of Supplemental Unemployment Benefits  

Using an Efile Application and the Reporting of Unemployment Compensation:
When using an Efile application, taxpayers will be notified that they did not report their unemployment compensation, or that the amount they reported does not match DOR records. If taxpayers indicate that they did not have any compensation, the system will allow them to proceed. However, their refund will be held up and a letter will go out requesting taxpayers to submit documentation to verify the correct amount.

Also see Correction of Return Assessment Based on Third Party Information

Nonresidents are subject to Massachusetts income tax on unemployment compensation that is related to previous employment in Massachusetts.

Part-year Residents are subject to Massachusetts income tax on unemployment received while a resident of Massachusetts, whether related to employment inside or outside of Massachusetts.

Where to Report on Original Tax Return; What to Enclose:

  • The amount reported on either U.S. Form 1040, Line 19, 1040A, Line 13, 1040EZ, Line 3, or U.S. Telefile Record, Item D must be entered on either Mass Form 1, Line 8a or Form 1-NR/PY, Line 10a. If taxpayer elected voluntary withholding of Massachusetts state income taxes on unemployment compensation, he or she should include the amount as reported on Form 1099-G on either Form 1, Line 36 or Form 1-NR/PY, Line 41. Attach a copy of Form 1099-G to the return.

Documentation to Submit with Abatement/Amended Tax Return:

  • Corrected Form 1099-G - Certain Government Payments;
  • Documentation to substantiate the correct benefits.

Massachusetts References:

Federal References:

  • I.R.C. § 85

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