People with depression have shown alterations in processing emotional information and working memory functionality. There is some evidence that emotional content may interact with working memory update processes, however neurological correlates are current unknown. In this preliminary study we utilized a novel version of the emotional variant of the n-back working memory task in fMRI. We examined BOLD response of 14 healthy controls and 13 depressed participants in response to happy, sad, and neutral displays of facial affect. No accuracy or reaction time differences were found between the two groups. The depressed group showed significantly decreased BOLD response to happy faces compared to the control group areas of the dorsal striatum and anterior cingulate. Significant, moderate, positive associations were found between right caudate activation with anxiety score and anterior cingulate activation with depression score in those with depression. Our novel task was able to elicit group level differences in emotional processing during working memory update. These results suggest those with depression fail to differentiate between positive emotional stimuli and stimuli with no emotional content.