Paying taxes on unemployment. This third week of may added nearly 2.4 additional people to the ranks of the unemployed. Over 39 million Americans have filed for unemployment over the past nine weeks as the coronavirus pandemic has hit the U.S. and prompted many businesses to hit pause. but thanks to federal lawmakers, more out of work Americans can apply for unemployment benefits and also get more in their pocket under new, temporary rules put in place. While that’s good news for many struggling amid the pandemic, it’s important to understand that unemployment benefits are not “free money”. In fact, experts say Americans receiving these weekly checks need to take steps now to avoid a nasty surprise on their tax bills next year. Paying taxes on unemployment.

With the U.S. experiencing unemployment rates not seen since the Great Depression, Congress had to act quickly to mitigate the effects. To help Americans cope, lawmakers passed the so-called CARES Act, a $2 trillion coronavirus relief package, that boosted unemployment benefits by $600 a week. Additionally, the new law created the Pandemic Unemployment Assistance program, which expanded the eligibility for benefits to include gig workers, independent contractors, self employed Americans and those who would not traditionally qualify for assistance. “More and more state have activated critical new CARES Act benefits,” says Andrew Stettner, a senior fellow at the Century Foundation and a leading unemployment expert. About 3.4 million workers are covered by PUA benefits now, up from 136,000 just two weeks ago.

Last year, the Department of Labor reported unemployment benefits replaced about 45% of a worker’s pay nationally. In terms of dollars, the Brookings Institution estimates that the national average weekly payment was $387 prior to the coronavirus pandemic. But that varies widely by state. Mississippi, for example, paid an average of $215 per week, while those in Massachusetts received $550 per week. Thats a large difference.