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Finally, A Little Break for the Unemployed: Government Provides Tax Break for those Receiving Unemployment Benefits

 (Picture taken during the Great Depression)

Some of us may have forgotten, but there was a time when the US did not have a social contract with unemployed citizens.  If you became unemployed, you were on your own.  No social safety net existed for the many men of the Great Depression who lost their jobs when there was a financial market meltdown.   


In 2010, things are very different.  Although countless experts have dubbed the recent financial crisis as the second Great Depression because of the similarities in the scale of unemployment, one important thing exists now that didn’t exist then: unemployment insurance.  By no means will I argue that the amount Americans receive on the unemployment role is anywhere equivalent to what they were capable of earning in a hot job market, but it does keep a great majority of families from starving to death.  It may not help families avoid foreclosure or prevent them from losing a car much needed for a successful job hunt, but it does provide an opportunity to hope for a better day.  Something our Depression brothers and sisters never had. 


Despite this fact, it is no less discouraging for the unemployed masses that are already bleeding money to have to pay a portion of what they receive in taxes.  The US government has recognized this and decided to provide those on the unemployment role with a tax break.  Under the American Recovery and Reinvestment Act of 2009, taxpayers who received unemployment benefits last year are exempted from paying taxes on a portion of this benefit. 


Below are the rules that govern the application of this tax break:      



(1)                            Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a specific state. It includes state unemployment insurance benefits, railroad unemployment compensation benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It does not include worker's compensation.


(2)                            Normally, unemployment benefits are taxable; however, under the Recovery Act, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their federal tax return.


(3)                            For a married couple, if each spouse received unemployment compensation then each is eligible to exclude the first $2,400 of benefits.


(4)                            You should receive a Form 1099-G, Certain Government Payments, which shows the total unemployment compensation paid to you in 2009 in box 1.


(5)                            You must subtract $2,400 from the amount in box 1 of Form 1099-G to figure how much of your unemployment compensation is taxable and must be reported on your federal tax return. Do not enter less than zero.


For more information, visit


Marsha Henry

Tax Quarry


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