(NewsUSA) - Finally, there's some good news for the millions of Americans who lost their jobs or saw a pay deduction in 2009.
The American Recovery and Reinvestment Act of 2009 includes 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 persons, as well as families with decreased income, should also see 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 noted another possible deduction -- expenses related to job searches. Potential deductible expenses include costs to prepare and mail copies of your resume, employment and outplacement agency fees, travel costs to and from interviews, and moving costs (See IRS Publication 521 for all qualifications).
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.
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. 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 and free help if you get stuck and guarantees the largest possible refund. Visit @link href='http://www.taxact.com'target="_blank">www.taxact.com/link to start your free federal return.