Unemployment Income-1st $2400 Not Taxable?

[zeros]

Had a client call me today about a few questions that he had. Has recently been laid off from his employer as a mechanic. He was reading off something and mentioned that the first $2400.00 of unemployment income is not taxable. I was unaware of this. Has anybody heard of this? New last?

[JSLATER]

Yes, see below

http://www.irs.gov/formspubs/article/0,,id=207577,00.html

[PIGLEE]

This is from The Tax Authority.

Unemployment Benefits
TheTaxBook™ 2008 Tax Year 1040 Edition, page 3-3. In general, federal and state unemployment benefits are fully taxable and reported on line 19 of Form 1040.

*****New law. Effective for 2009 only, the first $2,400 of federal and state unemployment compensation received by a taxpayer is excluded from gross income. Amounts in excess of $2,400 are fully taxable.

Real Nice !!!!!!!!!!!

[zeros]

Reporting Requirements?

I wonder how this will work? Does the client bring in a form with that amount already reduced or is the preparer responsible for deducting this?

[S T]

Software

Might depend on our software provider. The draft of form 1040 for 2009 - has
line 19 Unemployment compensation in excess of $2,400 per recipient (see page 27)...
so on page 1 of form 1040 it is amount excluding $ 2,400.

I would think the State Reporting(1099-G) would be the total benefits received without regard to the $2,400 exclusion.

Sandy

[JohnH]

Wonder how far into the tax season it will be before someone posts a story about an irate client who misunderstood the whole thing.

I can hear it now - "You're telling me that I only saved $360? I thought it meant I got $2,400 chopped off my tax bill - I'm taking this to somebody who knows what they're doing !"

[ChEAr$]

Wonder how far into the tax season it will be before someone posts a story about an irate client who misunderstood the whole thing.

I can hear it now - "You're telling me that I only saved $360? I thought it meant I got $2,400 chopped off my tax bill - I'm taking this to somebody who knows what they're doing !"

It's a darn good thing congress in it's finite wisdom didn't make the 2400 a deduction
on schedule a. And even not subject to the 2%!
Hah; how would you explain that one?

[BP.]

I can hear it now - "You're telling me that I only saved $360?"

With loads of clients getting UC, this'll be one of those fun little deductions where, if I can somehow manage to present it deftly, I can show them how my wizardry saved them more than enough to afford me!

This deduction should make people happy. I mean look at all your teacher clients who don't want you to miss their $250 income adjustment- for about $35-$65 something in savings.

[OtisMozzetti]

With loads of clients getting UC, this'll be one of those fun little deductions where, if I can somehow manage to present it deftly, I can show them how my wizardry saved them more than enough to afford me!

The trouble with the theory that we can take credit for getting the clients absolved from paying federal income tax on the first $2400 of their unemployment compensation is that most but not all UC recipients do not elect any withholding tax at all on their UC benefits. As a result those individuals typically owe a balance due and maybe estimated tax penalty. The $2400 will only soften the blow.

I still agree that we can take some pride that up to $2400 is not going to be taxed.

[mrbill]

Be careful with UC for State Taxes. To the best of my knowledge, Masssachusetts has not enacted this $2,400 deduction. I am unsure how other States will handle this.

[BP.]

most but not all UC recipients do not elect any withholding tax at all on their UC benefits.

I think just the reverse holds true for the folks I see - especially if I know they are collecting - I generally advise UC w/h.

Be careful with UC for State Taxes.

Interesting point about state taxes. Our state doesn't tax UC, so I didn't think about this.

[JohnH]

That's why I didn't mention potential state tax savings in my first post. Some states will follow Fed while others won't, and others may enact a higher or lower exclusion - it will be all over the place,.