First $2,400 of
Unemployment Benefits Tax Free for 2009
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First $2,400 of Unemployment
Benefits Tax Free for 2009
IR-2009-29, March 26,
— All or part of unemployment benefits received in 2009 will be tax free for
many unemployed workers, according to the Internal Revenue Service.
“This morning we
learned that a record 5.6 million people were receiving unemployment benefits in
the middle of March. This underscores the need for the relief provided by the
American Recovery and Reinvestment Act, which includes making the first $2,400
of unemployment insurance exempt from tax,” said IRS Commissioner Doug Shulman.
“I urge all unemployed workers to take this special tax break into account as
they plan their tax withholding and quarterly estimated tax payments for the
year. This change offers a helping hand to millions of Americans who are out of
work and struggling to make ends meet.”
Under the American
Recovery and Reinvestment Act, enacted last month, every person who receives
unemployment benefits during 2009 is eligible to exclude the first $2,400 of
these benefits when they file their tax return next year. For a married couple,
the exclusion applies to each spouse, separately. Thus, if both spouses receive
unemployment benefits during 2009, each may exclude from income the first $2,400
of benefits they receive.
The new law doesn’t
affect the return taxpayers are filling out now. Unemployment benefits received
in 2008 and prior years remain fully taxable.
Unemployed workers can choose to have income tax withheld from their
unemployment benefit payments. Withholding
on these payments is voluntary. However, choosing this option may help avoid a
surprise year-end tax bill or a possible
penalty for having
paid too little tax during the year. Those
this option will have a flat 10 percent tax withheld from their benefits.
workers who expect to receive more than $2,400 in benefits this year should
consider having tax withheld from their benefit payments in
excess of that amount.
workers who have already chosen to have tax taken out of their benefits, should
consider the $2,400 exclusion in determining whether to continue to have tax