How to File Your Taxes when You're Unemployed

Even if you're unemployed, it is likely that you will still need to fill out and file your state and federal taxes. Technically, unemployment benefits are viewed as taxable income. Anyone who has collected over $9,350 (per single person) in 2009 in unemployment benefits and who has received a W2 form is required to file a tax return to the IRS. If you've engaged in any freelance work or started a business in which your profits were $400 or more, you will also need to file a tax return. Of course, if you wish to collect on a tax refund this year, you must also file.

In the past, every penny of unemployment benefits was taxed. However, due to the recent economic downturn, that statute has changed for the 2009 tax year filing. If you are unemployed and are currently filing your taxes, be sure to keep the following important credits and deductions in mind:

1. Unemployment tax credit. You can exclude $2,400 from your taxable income when you file your tax return this year. This exemption is valid only for the 2009 tax year.

2. Medical expense deduction. As your adjusted gross income (AGI) falls, you become more likely to qualify for medical expense deduction. Any medical or dental co-payments, deductibles, premiums, prescriptions, etc., are deductible should they exceed 7.5% of your AGI. Also, keep in mind that if you are still continuing with your former employer's health coverage under the COBRA (Consolidated Omnibus Budget Reconciliation Act) plan, the expenses for that plan also qualify for the medical expense deduction.

3. Job search deduction. If, in the course of your job searching, you have spent any money on safe deposit boxes, resume preparation, long-distance calls, travel to job interviews, etc., then that money is deductible. However, the costs of the job search must exceed 2% of your AGI. You must also be conducting your job search in the same field as the one in which you were previously employed.

4. Earned income tax credit (EITC). Arguably, the most overlooked tax credit is the earned income tax credit (EITC), which helps low income and unemployed individuals pay their Social Security taxes. Depending on your (currently lower) earnings, you may qualify for this credit. More information about the EITC may be found by clicking on the Earned Income Tax Credit page via the IRS web site. Some states also offer a similar tax credit.

If you are still not sure about whether any of the following credits and/or deductions apply to you, be sure to ask for assistance. About 170 IRS Taxpayer Assistance Centers have been open since February 21^st, 2010 and maintain extended hours of operation. These centers are available to low or no income individuals and families and provide face-to-face tax consultation and service. The addresses and hours of these help centers can be found by clicking on the "Contact My Local Office" link on the IRS web site.