More than 22 million Americans are currently collecting unemployment benefits — and many may be surprised that those funds are taxable. According to the IRS, unemployment benefits are taxable income. This includes the extra $600 per week that is being paid by the CARES act until July, 31^st. Just a little planning can avoid a big tax bill when you file next year with these strategies:

Have Taxes Withheld.

File a W-4V to have federal and state income taxes withheld. This form should be submitted to the state unemployment department, but unfortunately every state is different. The U.S. Department of Labor website has links to every state’s program.

Save as much as your payment as possible.

This may be the simplest thing to do, but also the most difficult during these difficult times. The perfect amount to save is a difficult calculation based on your effective tax rate. This percentage may be on the first few informational pages of your last year tax return. If not, the equation for figuring out your effective tax rate is really very simple. Look at your completed tax return and identify the total tax you owed. You’ll find this number on line 16 of the new 2019 Form 1040. Now divide this number by line by what appears on line 10, your taxable income. The result is your effective tax rate. Now multiply this percentage times your monthly unemployment received, and that is how much you should save each month. This does not include what you may owe your state, but you can use the same calculation for your state taxes.

Pay Estimated Taxes.

Paying estimated taxes on a quarterly basis is another option, especially if you are a small business owner or you’re self-employed and has made these payments in the past. Also, the IRS has revised the dates these payments are normally due. The form and revised dates are on the IRS website.

Unfortunately, the reality is that millions of Americans may not be able to take any of these steps. Still, paying taxes later might be better for some, depending on how much money they need right at this moment. The only option for some might be to use the full benefit now and pay the taxes later when they may have a job and more income. Obviously, it will be just as important then to understand what tax may be owed and plan for it when the economy recovers and unemployment ends.