Are supplemental lost wages payments subject to federal income tax?

Unemployment benefits are taxable

Yes, supplemental lost wages payments are subject to federal income tax and the state, territory and the District of Columbia must communicate to individuals that such payments are taxable. Providing individuals with the option to have federal income tax withholding is a determination for the state/territory to make. The state, territory and the District of Columbia should encourage individuals to contact the IRS for specific guidance on the tax treatment of unemployment compensation (see https://www.irs.gov/taxtopics/tc418).