First $2,400 of Unemployment Benefits Tax Free for 2009

July 12, 2009 by Beeson Tayer & Bodine

Under the American Recovery and Reinvestment Act, enacted in February, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their tax return next year. For a married couple, the exclusion applies to each spouse, separately.

Unemployment benefits received in 2008 and prior years remain fully taxable.

Unemployed workers can choose to have income tax withheld from their unemployment benefit payments. Withholding on these payments is voluntary. Those who choose this option will have a flat 10 percent withheld from their benefits.

Those unemployed workers who have already chosen to have tax taken out of their benefits should consider the $2,400 exclusion in determining whether to continue to have taxes withheld.

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