If you are wondering whether your unemployment compensation is subject to federal and state income taxes, you are in good company. That is one of our most asked questions and is a reasonable concern since this is uncharted territory for so many. The answer is yes, you will be expected to pay tax at ordinary tax rates on your unemployment compensation (including the additional federal $600 payments) for both federal and state purposes for 2020. 

You will receive a Form 1099-G by January 31, 2021 from the state that will report your total unemployment as well as any withholding you elected at the time you signed up. If you didn't elect withholding at the start of unemployment, unfortunately, neither Kentucky nor Indiana allows you to change that decision now. In that case you can chose to pay quarterly estimated tax payments or wait to pay at the time you file your return. Choosing to wait may result in underpayment penalties and will most certainly result in a large payment being due all at once, so be aware!