Do you owe income tax on Arizona unemployment benefits?

Arizona unemployment benefits count as income on both your federal and your Arizona tax returns. Nobody takes the tax out for you by default, so the choice you make about withholding decides whether you owe a lump sum at filing time.

Federal income tax on Arizona unemployment

All unemployment benefits count as taxable income on your federal return, and that includes Extended Benefits and Trade Adjustment Assistance. DES reports what it paid you to the IRS for the year it paid it, which may differ from the year you lost the job.

The IRS says where the figures go when you file. The Box 1 amount on your 1099-G goes on line 7 of Schedule 1 (Form 1040), and any federal tax withheld, shown in Box 4, goes on line 25b of Form 1040. If you had nothing withheld, the IRS says you may need to make quarterly estimated tax payments instead. Its unemployment compensation guide covers the details.

Does Arizona tax unemployment benefits?

Yes, Arizona taxes the unemployment benefits DES pays. The Arizona Department of Revenue's instructions for tax year 2025 start the state return from your federal adjusted gross income, which already includes your benefits. The list of amounts Arizona lets you subtract has no line for state unemployment benefits; the one unemployment subtraction it allows is for railroad unemployment benefits paid by the Railroad Retirement Board.

For tax year 2025, Arizona taxed taxable income at a flat 2.5%. Arizona law also requires DES to tell every new claimant that benefits are subject to both federal and state tax.

How to have taxes withheld from your benefits

DES withholds nothing unless you choose it. You can choose federal withholding alone, or federal and Arizona withholding together; DES's paper application says you cannot have only Arizona tax withheld.

• Federal withholding of 10%. DES's income tax page describes it as 10% of your weekly benefit payment, while its paper application says 10% of your maximum weekly benefit amount. In a week your payment is reduced, ask DES which figure it uses.
• Arizona withholding of 1% of your gross weekly benefit amount.

Arizona law says the choice is made in writing and can be changed later. It also says tax is withheld only after overpayment repayments, child support, and any other deductions the law requires, and DES's current paper application agrees, taking tax from what is left after earnings, pension, overpayment, and child support deductions. DES's income tax page words the order the other way. The law's order is the rule.

That example is worked from the rates above and Arizona's maximum weekly amount, not taken from a DES page.

To start, stop, or change withholding, do it online or send DES the Voluntary Election for Federal/State Income Tax Withholding form, UB-433. Mail it to:

Department of Economic Security Unemployment Insurance Administration P.O. Box 29225 Phoenix, AZ 85038-9225

Or fax it to (602) 612-8705 or (888) 305-1348 in Phoenix, or (520) 770-3357 or (520) 770-3358 in Tucson. DES's income tax page has the form.

Your 1099-G: what it shows and how to get one

Form 1099-G is the record DES sends you and the IRS of the benefits it paid you in a calendar year. Box 1 shows the total benefits paid, and Box 4 shows the federal tax withheld.

• In CACTUS. DES has issued the 1099-G forms for 2025, and they are available in CACTUS, DES's online benefits system.
• By mail. If you did not consent to getting it electronically, DES mails the form to the mailing address on your claim after the tax year ends, and a copy is still in CACTUS. You can change how you get it at any time in CACTUS or by calling (877) 600-2722. DES's income tax page says it mailed the forms for 2024 benefits on January 31, 2025. Keep your address current: you can call the UI Call Center and choose option 4 to update it, or fax or mail DES's Personal Information Change Request form.
• For an earlier year, write to the Department of Economic Security, Special Programs Unit, P.O. Box 6123, Mail Drop 589C, Phoenix, Arizona 85005. Include your name, Social Security number, and the tax year you need.

DES's 1099-G tax forms page has a short video showing how to view the form in CACTUS and how to dispute what it says.

What to do about a wrong 1099-G or one for a claim you never filed

If the amounts look wrong, use the dispute steps shown in the video on DES's 1099-G page.

If you got a 1099-G for benefits you never received, someone may have filed a claim in your name. The U.S. Department of Labor says the state issues a corrected form and updates the IRS, and that you should:

1. Report only the income you actually received on your tax return.
2. File on time, without waiting for the corrected form or for the investigation to finish.

To report the fraud in Arizona:

• Contact your local police.
• Submit DES's online fraud report from its unemployment fraud and identity theft page. Include your Social Security number, your full name as it appears on the documents, and the mailing address where the documents arrived.
• The Department of Labor also lists 1-800-251-2436 as Arizona's line for reporting unemployment identity fraud, and its identity fraud page explains the wider steps.

How an overpayment can reach your tax refund

If DES decides it overpaid you, your tax refund can go toward the debt. The handbook says DES may apply federal and Arizona income tax refunds to an unpaid overpayment. DES's overpayment FAQ is narrower on the federal side: it says a state refund can be taken for any overpayment, but a federal refund only when the overpayment came from fraud or from failing to report wages. Repayment options and waivers are on the appeals and overpayments page.