Just because you are unemployed, and not getting a paycheck, doesn't mean Uncle Sam isn't going to want its share of your unemployment check. That's right, unemployment benefits are taxable, and here are some tax tips you should remember.
For one, it is true that unemployment benefits are taxable. However, because of the Great Recession, there are some "bonuses" for the jobless this year. The American Recovery and Reinvestment Act (ARRA) allows you to exclude the first $2,400 of unemployment benefits when you file. If you’re married and both partners received jobless benefits, you’re each eligible for the exclusion.
Expenses for finding a new job have always been deductible. That means that things like long distance calls, flights or other transportation (including car expenses) for finding a job, resume fees, etc. However, this requires you to itemize deductions, and you can only claim the amount of expenses that exceeds 2 percent of your adjusted gross income (AGI).
Many are accessing their 401K or IRA plans in these tough times. If you did, normally if you’re under 59 1/2 you’ll be taxed and charged a 10 percent penalty as well. However, the 10 percent penalty does not apply to withdrawals used to pay for health insurance after a layoff, if you received jobless benefits for at least 12 consecutive weeks.
There is a section for medical expenses on your tax form (schedule A, once again among the itemized deductions). Did you know that in addition to the expenses themselves, you can deduct COBRA? However, you are only able to deduct that amount that exceeds 7.5 percent of your AGI.
Also, check to make sure that some tax deductions you might have been excluded from previously, such as the Earned Income Tax credit, might not be available to you now. If you have low or no income because of only earning jobless benefits, you might be able to use some of those.
Written by Michael Santo
HULIQ.com
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