Recent reports seem to indicate that while the economy may find its way out of the current recession and job growth is on the horizon (See article on job growth) the nation's unemployment rate is unlikely to be effected.
Although this is undoubtedly disheartening for the jobless, there is a bit of silver lining when it comes to unemployment benefits. If you haven't heard already, there's good news for those who were unemployed at any time in 2009 and collecting unemployment benefits. These taxpayers are entitled to a special tax break when they file their 2009 federal tax returns. This tax break is part of the American Recovery and Reinvestment Act (ARRA) of 2009.
Here are five important facts you need to know about your unemployment benefits:
1. Unemployment compensation generally includes any amounts received under the employment compensation laws of the United States or of a specific state. It includes state unemployment insurance benefits, railroad compensation benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It does not include worker's compensation.
2. Normally, all unemployment benefits are taxable; however, under the ARRA, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their federal tax return.
3. For a married couple, if each spouse received unemployment compensation, then each spouse is eligible to exclude the first $2,400 of benefits.
4. You should receive a Form 1099-G, Certain Government Payments, which will show the total unemployment compensation paid to you in 2009, in box 1.
5. All you have to do is subtract $2,400 from the amount in box 1 of your Form 1099-G to figure out how much of your unemployment compensation is taxable and then report this amount on your federal tax return, do not enter less than zero. You must report unemployment benefits received on your tax return.
Finally, if you collected more than $2,400 in unemployment benefits in 2009, don't forget to claim a deduction for your job-hunting expenses. Tips on expenses you can include in the job-hunting deduction can be found here.