Updated: Feb 10
YES 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.
Can you withhold taxes for the $600? As of now, EDD can only withhold taxes from state benefits, but not the federal aid.
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. In California your unemployment will not be subjected to state taxes but you will still be responsible for the FEDERAL taxes on your base unemployment and the additional $600.
Links to Articles