Yes, you must pay taxes on unemployment benefits. How much depends on where you live

Under the CARES Act, millions more Americans are eligible for unemployment benefits, and the benefits are much bigger than usual.

But unlike the coronavirus stimulus checks, most will have to give some of that money back in the form of taxes, though there’s different ways to do it, and some folks will be paying less than others.

Where you live?

Through the Pandemic Unemployment Assistance program, unemployment benefits increased $600 on top of however much was already being received weekly. Also, an additional 3.4 million part-time and independently employed workers typically ineligible for help, are temporarily included, outlets report.

When it comes to paying taxes on unemployment, the federal government always wants a cut, but not all states do, according to Kiplinger.com.

Montana, California, Oregon, Pennsylvania, Virginia, and New Jersey say unemployment benefits are tax exempt. And if you live in a state with no income tax -- Texas, Florida, Nevada, South Dakota, Wyoming, Washington, or Alaska -- that applies to unemployment too, according to the outlet.

Best way to pay?

Experts generally recommend tax withholding, a concept most are probably familiar with.

Often, employers take the money out of worker’s paychecks that is owed in income tax and pass it along to the IRS, rather than having employees do it themselves.

However, this process isn’t done to unemployment income automatically, CNBC reported.

“I know people really need their money, but so there are no surprises at tax time, I would say request to withhold some of the money,” Lisa Greene-Lewis, a certified public accountant told CNBC.

This way, there’s less room for people to make miscalculations and end up paying the IRS less than it demands, causing headache and possibly worse later down the line, CNBC reported.

To set up tax withholding, contact your state’s unemployment office and request form W-4V, fill it out and submit it.

“If requested, states typically withhold 10% for federal taxes and an additional amount to cover their levy, if applicable,” CNN reported.

Still, paying taxes later might be better for some, depending on how much money they need right at this moment.

“[Other experts] say it might be better to get the full benefit now and pay the taxes later when you may have a job and more income,” the outlet reported.

This story was originally published May 18, 2020 at 3:55 PM with the headline "Yes, you must pay taxes on unemployment benefits. How much depends on where you live."