- Days left

Don't forget about unemployment benefits at tax time

There's finally some good news to report on the job front. In January, the national unemployment rate dropped to 9.7%, the lowest since August 2009. And the news got even better last week when the Labor Department reported that there were 440,000 initial jobless claims filed in the week ended February 6, down almost 10% from the previous week.

It may be a sign that the economy is on its way to recovery -- but more work is still needed in Washington. It will clearly take some time to climb out of a hole that saw 150,000 jobs lost last December alone.

Last year, the federal government took measures to offer some relief to the more than 4.5 million people still looking for work. The American Recovery and Reinvestment Act (ARRA) included a provision that exempts the first $2,400 in unemployment benefits from federal income tax. In prior years, all unemployment benefits were taxable for income tax purposes at the federal level.


Any unemployment benefits over the exempt amount are still taxable, in addition to other sources of income, such as interest and dividends.

Here's where it can get tricky: Unlike your "normal" paycheck, many unemployment checks don't reflect an appropriate amount of withholding. This is because many states allow you to opt out of federal income tax withholding from your benefits during the year. Less withholding during the year may mean more to pay out at tax time.

If you elect not to have federal income tax withheld from your benefits check, you should make estimated payments during the year in order to ease your tax bite and avoid a possible penalty. To do this, you'll need to complete a form 1040-ES. The form 1040-ES will provide you with a series of payment coupons you can use to make payments during 2010. Most tax preparation software packages and tax professionals can figure these amounts for you during the year when you file your taxes for the 2009 tax year.

The exemption for unemployment compensation benefits applies whether you were unemployed for all or part of the year. Additionally, the regular income limits for filing a tax return still apply.

Don't forget to offset your taxes, if you qualify, with the applicable deductions (for both those who itemize and those who don't) and credits. Some deductions, like job search expenses, may be particularly timely.

If all of this seems a bit overwhelming, remember that free tax help is available.

Increase your money and finance knowledge from home

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

What is Inflation?

Why do prices go up?

View Course »

TurboTax Articles

What Are the Tax Penalties for Smokers?

This requirement for minimum essential coverage (MEC) under the Affordable Care Act applies to smokers and nonsmokers alike. If you're not covered by an employer's health plan and are a smoker, you can go to the health care marketplace to find MEC. If you're still unable to comply, you may have a penalty applied.

Tax Planning for Beginners

Your tax refund is based on how much tax you pay in excess of the tax you owe. Basic tax planning strategies aimed at reducing the amount of your taxable income may increase the gap and thus your refund. In some cases, these strategies benefit you in other ways, offsetting future costs for health care or providing for retirement. Though some aspects of tax law can be complicated, even a beginner can focus on taxable income reduction.

Affordable Care Act (Obamacare) Survival Guide For ALEs

A key feature of the Affordable Care Act (also known as Obamacare) is the way in which responsibility for affordable health care coverage is shared between stakeholders. Companies that employ 50 or more people may be considered "applicable large employers" or ALEs under the Affordable Care Act. ALEs have specific provisions when it comes to providing health insurance, and these provisions are being phased in from larger to smaller companies over time. The Internal Revenue Service (IRS) notes that less than 5% of employers are considered ALEs.

Startup Business Tax Tips

Starting your own business has always been the American dream. To be your own boss and earn a living by doing what you love definitely has its benefits. But the possible high costs associated with going out on your own can prove to be a hurdle. The good news is, the Internal Revenue Service (IRS) cuts business owners a bit of a break when it comes to taxes.

Add a Comment

*0 / 3000 Character Maximum