DEFINITION of 'Unemployment Income'

An insurance benefit that is paid as a result of a taxpayer's inability to find gainful employment. Unemployment income is paid from either a federal or state-sponsored fund. The recipient must meet certain criteria in trying to find a job. Employers and employees are assessed a payroll tax to cover the cost of this benefit.

Also known as "unemployment benefits" or "unemployment compensation".

BREAKING DOWN 'Unemployment Income'

Unemployment income is fully taxable as ordinary income. Recipients of this benefit are sent a Form 1099-G at year-end detailing the total amount of benefits received, which they must report on the 1040. Unemployment benefits were first introduced along with Social Security in 1935. Unemployment income is designed to provide subsistence income for a given length of time, giving the unemployed recipient time to find another job.

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