What happens if you collect unemployment benefits while making 1099 income?

You are unlikely to do jail time, unless there is strong evidence that you intended to commit fraud--and even in that case, unless you're a repeat tax or financial offender, you'd still be unlikely to do jail time.

You may have to repay some of your unemployment, possibly with interest and penalties. Unemployment insurance takes cognizance of all employment income, whether as a W-2 or 1099 employee. You may not receive UI while employed in any capacity. Therefore, if you were working as an independent contractor, you should not have receiving UI at that time. (You can go to your state labor dept.'s website if you want to see the exact rules.)

Whether it's likely to come up at all, and hence whether you are likely to have to make repayment, etc. depends on whether the information comes to the unemployment office's attention. Government is, not to belabor the obvious, big; it is far from a given that the IRS or the state tax dept., on the one hand, and unemployment share information on any sort of regular or systematic basis.

Ideally, if you could afford to make restitution of those amounts of UI you should not have received, you should, though you should do so with the assistance of an attorney, to make sure that you receive the most favorable treatment possible.