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 unemployment benefits due to the coronavirus pandemic are getting a boosted payout.

Under the CARES Act, any eligible unemployed person will receive both regular unemployment benefits from their state and an additional $600 per week from the federal government from April 5, 2020 until July 31, 2020.

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 taxes.

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:
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• How to file taxes for 2019
• Should I do my own taxes?
• Credit Karma vs. TurboTax
• Where is my tax refund?

Read the original article on Business Insider