Pandemic Unemployment Benefits Are Income

The federal government recently added $600 a week to unemployment insurance benefits now being drawn by millions of workers.  The extra cash was among three new benefits in the Coronavirus Aid, Relief and Economic Security Act (CARES), which took effect late in March.

Generous as that is, though, workers might want to set aside some money for income taxes. The fact is, Congress has not exempted those $600-a-week payments or the regular unemployment benefits from federal taxes.

With several types of pandemic payments underway, taxpayers might be baffled about tax impacts. For example, the well-publicized stimulus payments of up to $1,200 per person and $2,400 for married couples effectively come tax-free. A May 6 article from Forbes online (www.forbes.com) noted that the payments are reported on the federal tax return, but then are offset by a special credit.

Unemployment compensation – including the new $600 benefit – is treated differently. It simply is figured into gross income, making it taxable.

The extra $600 payments began immediately after the bill was signed, and they last through July 31.  In general, any workers who are receiving unemployment compensation should automatically receive the boost.

How might workers set aside some money to pay taxes? One common way is by having state governments withhold money from unemployment benefits when they are paid. Taxpayers also can pay estimated taxes each quarter to federal and state governments.

The National Employment Law Project published a fact sheet that goes into much more detail about unemployment insurance provisions in the CARES Act. See it at https://www.nelp.org/publication/unemployment-insurance-provisions-coronavirus-aid-relief-economic-security-cares-act/

Of course, Eric Buechler, tax specialist and owner of EricJohn Ltd., can provide more specific advice for your personal tax situation.