Tax Tip - Unemployment in 2009

If you were on unemployment in 2009, you should know that the first $2,400 of unemployment is not taxable. The tax booklet is a little confusing when you read it. It's always a smart idea to clarify any points of tax law you aren't sure about. The tax booklet states "You do not have to pay tax on unemployment compensation of up to $2,400 per recipient. Amounts over $2,400 per recipient are still taxable."

It is possible that many will read this to state that they must claim all of their unemployment benefits if they received more than this amount. This is not accurate. What this means for you is when you file your taxes, you do not include the first $2,400 of unemployment benefits. If you received more than this amount in unemployment benefits, subtract $2,400 from the total amount on your 1099-G form from the state.

It is important to do this correctly to ensure you get the right amount in other credits. For example, if you are able to take the EIC, including that $2,400 in unemployment benefits will put you in a different bracket and could reduce the amount you receive. (When you figure out your EIC, the unemployment wages only count if they lower your credit.) For those who are married and file jointly, if both partners were on unemployment, you may reduce each partners' unemployment wage by $2,400. If you use an online filing program, it should figure the difference for you. I know that H&R Block Free File does. If you use an online filing program, input the numbers as they are stated on your 1099-G, and make sure the program takes the first $2,400 for you. Don't assume that it will, make sure!

This reduction of tax on your unemployment benefits is only for unemployment wages in 2009. It cannot be used if you still need to file for 2008 taxes, and may not be available in the coming tax years. The American Recovery and Reinvestment act is responsible for this allowance. This act also included other tax breaks for workers and families. It is hoped that employment rates will increase as the economy begins the long road to recovery.

I am not a licensed tax professional. Researching new tax laws and credits is just one of my passions.

To read about a new credit for 2009, read New Tax Credit- Making Work Pay

To read about filing your taxes online with H&R Block Free File, read this.