The US government is adding $600 a week to unemployment pay during the pandemic, but it's not tax free
- Unemployment benefits are considered compensation, just like income from a job.
- Under the CARES Act, the federal government is paying eligible unemployed people an extra $600 a week until July 31.
- The additional payment is added on to your regular benefits and will be taxed as income.
- Read more personal finance coverage.
Millions of Americans seeking
Under the CARES Act, any eligible unemployed person will receive both regular
As long as you qualify for state benefits, you'll get the extra $600 added to your weekly pay.
Is the $600 unemployment tax free?
Unemployment benefits are generally not tax free (unlike the stimulus checks also approved under the CARES Act). Any money you receive from the federal or state government unemployment fund is included in your gross income and taxed at your ordinary income rate.
If you qualify for unemployment benefits through your state, the extra money will be automatically added to your state benefits check or deposit and appear as one total amount. Early next year you'll receive Form 1099-G (Certain Government Payments) listing the sum total of unemployment payments you received in 2020. You use this form to fill out your tax return and make sure you paid the right amount of
There are two ways to pay taxes on your unemployment income: through withholding or estimated quarterly payments.
If you want your taxes automatically taken from your benefit check or direct deposit before you get paid, like they would be from a traditional paycheck, then you need to file Form W-4V (Voluntary Withholding Request). This will instruct the payor — most likely your state government — to withhold 10% of each payment for federal income taxes. It will also take a portion of the money for state taxes, if applicable.
The other option is to make quarterly payments directly to the IRS for the amount you estimate you'll owe. Keep in mind that this method requires doing some calculations, meeting payment deadlines every three months, and may result in a penalty charge if you underpay.
- More tax day coverage:
- When are taxes due?
- How to file taxes for 2019
- Should I do my own taxes?
- Credit Karma vs. TurboTax
- Where is my tax refund?
- A millennial who became a millionaire after the 2008 crash says building wealth is about more than opportunistic investing. You also have to make lifestyle changes and load up on side hustles.
- OnePlus Nord CE 3 leaks ahead of launch – specs, expected launch date and more
- A 53-year-old longevity researcher says his 'biological age' is a decade younger thanks to 4 daily habits — but the science behind them is mixed
- Learning AI can be lucrative: Freshers’ annual pay is ₹10-14 lakh in India, says TeamLease Digital report
- CoCo bonds fall sharply over Credit Suisse deal
- Date night conversations to diet charts – 10 things ChatGPT can help you with
- Gold is bankable, shines more than some western banks say experts
- Fear of financial crisis is keeping investors away from stock markets say experts