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StumbleUpon(NU) — Finally, there's some good news for the millions of Americans who were unemployed or experienced a decrease in income during 2009. The relief comes in the form of taxes.
The American Recovery and Reinvestment of 2009 included a measure that allows up to $2,400 in unemployment compensation to be exempt from 2009 federal taxes. On a joint return, if both taxpayers have received unemployment compensation for 2009, each may exclude the first $2,400 of benefits received. Any amount over $2,400, as well as severance pay, is considered taxable income.
Federal withholding of unemployment compensation is voluntary, so depending on the amount of federal taxes withheld, you may owe taxes on the benefits above $2,400 received.
Unemployment compensation should be reported on Form 1099-G. You'll record that information on line 19 of Form 1040, line 13 of Form 1040A or line 3 of Form 1040EZ.
Unemployed, as well as families with decreased income, should also check if they qualify for the Earned Income Tax Credit (EITC) which is based on income levels. Jessi Dolmage, spokeswoman for 2nd Story Software, Inc., makers of TaxACT, explains, "Congress raised the income limits for 2009, meaning more families qualify for the refundable credit."
In order to qualify for the EITC, you must have worked during part of 2009, and your earned income and AGI must both be less than:
- $43,279 ($48,279 married filing jointly) with three or more qualifying children
- $40,295 ($45,295 married filing jointly) with two qualifying children
- $35,463 ($40,463 married filing jointly) with one qualifying child
- $13,440 ($18,440 married filing jointly) with no qualifying children
If you qualify, you could receive up to the following credit amounts:
- $5,657 with three or more qualifying children
- $5,028 with two qualifying children
- $3,043 with one qualifying child
- $457 with no qualifying children
Dolmage also noted, "If you weren't planning to file a federal return but you qualify for the EITC, you must file a return to receive the credit."
"Although it's not new, a miscellaneous deduction people tend to forget is expenses related to job searches - even if you were never unemployed or never got a new job," reminded Dolmage. "To qualify, though, you must be searching for a main job in your current occupation."
Potential deductible expenses include:
- Costs to prepare and mail copies of your resume
- Employment and outplacement agency fees
- Travel costs to and from interviews (the primary purpose of the trip must be to look for a new job)
- Moving costs if your new job is at least 50 miles farther from your former home than your previous job was from your former home (see IRS Publication 521 with all qualifications for deducting moving expenses)
If you're looking for a job for the first time, or a considerable amount of time has occurred between the end of your last full-time job and search for a new full-time job, you're ineligible for the deduction.
In order to claim job search expenses as a miscellaneous deduction, you must itemize your deductions (versus taking the standard deduction), and have receipts and detailed documentation. In addition, you can only claim miscellaneous deductions if the total is more than two percent of your adjusted gross income.
If you owe taxes but can't afford to pay them, you should still file your federal return and pay as much as you can by April 15 in order to avoid penalties and interest. Contact the IRS to discuss payment options, which include short-term extensions to pay and installments.
Tax preparation software or an online solution will guide you through the tax implications of unemployment and the EITC. They will also help you identify other credits and deductions to minimize your taxes. One solution in particular allows everyone to prepare, print and e-file a federal return for free. TaxACT Free Federal Edition provides step-by-step guidance, free help if you get stuck and guarantees the largest possible refund. Visit www.taxact.com to start your free federal return.
