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State Taxes on Unemployment Benefits: What Does Your State Do?

Millions of Americans are suddenly getting an unwanted crash course on the U.S. unemployment compensation system, courtesy of the coronavirus pandemic. How do I apply for benefits? How much will I get? How long will they last? These are some of the more pressing questions that newly unemployed people have right now. But, before long, another question will likely spring to mind: Will I have to pay taxes on my unemployment benefits?

When it comes to federal income taxes, the answer is yes. Uncle Sam taxes unemployment benefits as if they were wages. However, when it comes to state income taxes, it's a bit of a mixed bag. Most states follow the federal government and fully tax unemployment benefits. But some states don't tax them at all (sometimes because the state doesn't have an income tax). And a couple of states will only tax part of your benefits.

What does your state do when it comes to taxing unemployment benefits? Read on to find out. We also outline each state's income, sales, and property tax levels--and provide a link to the state's page in our full tax guide--so you can get a sense of the overall tax burden where you live.

Alabama

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State Taxes on Unemployment Benefits: Alabama does not tax unemployment benefits. In addition, the first $25,000 received from an employer as severance pay, unemployment compensation, and the like as a result of "administrative downsizing" is not taxed.

State Income Tax Range: Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for single filers). High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for single filers). Alabama also allows residents to deduct all of their federal income tax (not including certain federal tax credits) from state taxable income. Some cities impose a "municipal occupational tax" of 0.5% to 2% on income paid to workers.

Sales Tax: 4% state levy. Localities can add as much as 7.5% to that, and the average combined rate is 9.22%. Alabama is one of the few states that does not exempt food from sales tax.

Property Taxes: The median property tax rate in Alabama is $417 per $100,000 of assessed home value.

Go to Alabama's Full State Profile

Alaska

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State Taxes on Unemployment Benefits: Alaska does not tax unemployment compensation.

State Income Tax Range: There is no state income tax.

Sales Tax: Alaska is one of five states with no state sales tax. However, localities can levy sales taxes, which can go as high as 7.5%. But, according to the Tax Foundation, the statewide average is only 1.76%.

Property Taxes: In Alaska, the median property tax rate is $1,183 per $100,000 of assessed home value.

Go to Alaska's Full State Profile

Arizona

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State Taxes on Unemployment Benefits: Arizona taxes unemployment compensation to the same extent as it is taxed under federal law.

State Income Tax Range: Low: 2.59% (on up to $53,000 of taxable income for married joint filers and up to $26,500 for single filers). High: 4.5% (on more than $318,000 of taxable income for married joint filers and more than $159,000 for single filers).

Sales Tax: 5.6% state levy. Localities can add as much as 5.6% to that, but the average combined levy is 8.4%, according to the Tax Foundation. Many cities in Arizona levy a tax on food for home consumption, like Tempe (1.8%) and Scottsdale (1.75%); Phoenix

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