The IRS doesn’t consider unemployment benefits as “earned income” but it does include it in calculating your adjusted gross income. The unemployment office looks at your gross wages when considering you for unemployment benefits. Benefits were taxable only for single tax filers whose adjusted gross income exceeded $20,000, or $25,000 for joint filers. If your income was from more than one source, repeat the gross pay calculation for each and add all income sources together for the month. In this example, Quarter 3 and Quarter 4 were the highest quarters: $8,840 + 10,000 = $18,840. Note: If you worked 2 or fewer quarters, use the highest quarter of wages. An applicant's adjusted gross income, as determined by the Internal Revenue Service, includes not just income earned from a job, but also income from other sources, such as unemployment benefits. In this example, $724.61 is your average weekly wage. However, nowhere does the FAFSA application ask the applicant specifically about whether a person receives unemployment benefits and, if so, how much. IR-2020-185, August 18, 2020 WASHINGTON — With millions of Americans now receiving taxable unemployment compensation, many of them for the first time, the Internal Revenue Service today reminded people receiving unemployment compensation that they can have tax withheld from their benefits now to help avoid owing taxes on this income when they file their federal income tax return … Count gross income of all household members; allow deductions or exclusions per grantee's policy. For figuring base pay, "earnings" is straightforward -- the full amount of compensation that your former employer paid you. Step 3: Divide the sum of the two highest quarters from Step 2 by 26 (the number of weeks in the combined quarters) $18,840 ÷ 26 = $724.61. 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