Is Unemployment Compensation Taxable on My 2009 Tax Return?

With all of the 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 when filing your 2009 tax returns. There is some good news, that a portion of the unemployment taxes are not taxable for 2009.

As a consequence of President Barack Obama signing the American Recovery and Reinvestment Act of 2009, the first $2,400 of unemployment income received during 2009 will not be taxable income. This section of the new legislation, is an improvement from the prior year, because for many unemployed workers, the first $2,400 of unemployment benefits received in 2009 will not be subject to taxes.

With millions of Americans out of work, this piece of legislation provides some relief, in the form of a tax break for unemployed taxpayers. Under this new tax law, each person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their 2009 tax returns.

Withholding on unemployment benefits was not mandatory during 2009. Therefore, for those taxpayers who had proper withholdings, they will now be able to avoid a surprise and a year-end tax bill or possibly a penalty for not paying sufficient taxes based on the unemployed benefits received in excess of the $2400 threshold. It's sad, since you would think that the unemployed, now more than ever, have to give back a portion of those tax benefits that were received in excess of $2400 to the government, when they probably really need that money for food and other basic necessities for the family.

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.

For those individuals seeking more information about the treatment of overpayment and for other information concerning the taxability of unemployment compensation please refer to IRS Publication 525.

To learn more about filing your taxes early in January 2010 and special 1040EZ program, please visit http://www.sl-cpa.net/form1040taxes.php and register in our secured portal for the 2009 tax season and you will lock into our special pre tax season 1040EZ price, a monthly tax and accounting newsletter and over 50 financial web based calculators at no additional charge.

Sandor Lenner,CPA/MBA has over 35 years of accounting experience and is also a Certified QuickBooks ProAdvisor.He works part-time with Susan Missal Lenner, P.A. http://www.sl-cpa.net