Finally, some sanity on taxing unemployment insurance benefits; well, partial sanity for one year anyway. The American Recover and Reinvestment Act of 2009 give a one-year exclusion for unemployment benefits you receive, up to a point.
For 2009 only, you can receive up to $2,400 of unemployment insurance benefits free of tax. There are none of the usual limitations based on your gross income with this provision.
Another important note, the $2,400 is per person and does not automatically double on a jointly filed tax return. For example, if you receive $5,000 of unemployment benefits and your spouse receives $500 you can exclude only $2,900. That is your full $2,400 and $500 of your spouse's benefits.
It has never made any sense to me that unemployment benefits are taxed by our federal government. Essentially it is the feds deciding to effectively reduce your benefits by taking back part of your payments, possibly a significant portion. My personal opinion, it is kicking someone when they're down. Bad form. Since this is just a one year change lets hope it may be the start of some sanity in Washington that just might lead to some permanent tax relief for the unemployed.
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