How Much of the Unemployment Compensation is Taxable for 2009?
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As a result of downturn in the economy and layoffs resulting from businesses going out of business, it’s important for you to know whether or not unemployment benefits received during 2009 are taxable and also how to report those unemployment benefits. There is some good news, that a portion of the unemployment taxes are not taxable for 2009.
As a result of President Barack Obama signing the American Recovery and Reinvestment Act of 2009, the first $2,400 of unemployment income received during 2009 will be exempt from taxable income when taxpayers file their 2009 tax return. This legislation, is a small improvement from last year, since for many unemployed workers,the first $2,400 of unemployment benefits received in 2009 will be tax-free.
With many Americans still unemployed this year, this new legislation provides some relief in the form of a tax break for unemployed taxpayers. Under this new law, those taxpayers who received unemployment compensation during 2009 are eligible to exclude the first $2,400 of such benefits when they file their 2009 tax returns during the early part of 2010.
This exclusion is applicable to married couples, providing both of whom received unemployment benefits. If both were unemployed, the total exclusion would be $4,800 or $2,400 per recipient.
For those individuals unfamiliar with the forms and believe they have received unemployment compensation, the unemployment compensation is shown on Form 1099-G. The taxpayer would report the unemployment compensation on line 3 of Form 1040EZ, line 13 of Form 1040 A or line 19 of Form 1040. Further, if you made contributions to a government unemployment compensation program, then you are required to reduce the amount you report on Form 1040 by the total amount of those contributions that you made to a governmental unemployment compensation program. Also, if you received an overpayment of any unemployment compensation during 2009 and you have to repay any of that amount in 2009, then reduce the amount you report by the amount you repaid.
If you would like more information explaining the treatment of overpayment and for other information concerning unemployment compensation please refer to IRS Publication 525. Tax laws are complex, change constantly and each situation is unique. This article is not intended to provide legal or accounting advice. The reader should perform his or her own due diligence and consult competent professionals in this area.
Learn more about our competitively priced paperless and internet based approach to tax preparation at affordable prices. Sandor(Sandy) E. Lenner,CPA-MBA has been providing business and accounting services for 35 years and enjoys working part-time at his wife’s CPA firm
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