The IRS considers unemployment compensation to be taxable income—which you must report on your federal tax return. State unemployment divisions issue an IRS Form 1099-G to each individual who receives unemployment benefits during the year. ... Some states also count unemployment benefits as taxable income.

The IRS gets copies of all 1099 forms.  Generally, you can expect the IRS to impose a late payment penalty of 0.5 percent per month or partial month that late taxes remain unpaid. ... If the 1099 income you forget to include on your return results in a substantial understatement of your tax bill, the penalty increases to 20 percent, which accrues immediately.

What Happens When Someone Forgets to File a 1099 on Their Tax Return?

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