Income Tax Issues For The Unemployed in 2010
Millions of Americans were unemployed in 2010 and took unemployment compensation. Well, there are income tax issues you need to understand and comply with this tax season.
The numbers are ugly. The reported unemployment rate is in the 9.5 percent range. We all know the real number is much higher – many estimate in the 17 percent range. Regardless, this Great Recession has left millions of Americans without an income and many have relied on unemployment compensation to get through it. As we approach April 15th, you need to know how to deal with the tax consequences of the money you received.
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The Bad News
The bad news is your unemployment compensation is taxable. Yes, you read that correctly. Even worse, you have to pay tax on all of it. In 2009, the first $2,400 was tax free. Not this year. If you received a single dollar, you have to report it and pay taxes on it.
The Good News
The good news is you still have deductions available to you. For instance, you can deduct costs associated with trying to find a job. These might include incidentals such as resume preparation, traveling to and from job interviews, job counseling and so on. Unfortunately, these deductions are capped at 2 percent of your adjusted gross income, so do the math.
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Earned Income Tax Credit
This is a tax credit you should take a close look at. If you earned less than $43,452 as an individual or slightly higher if married, you can claim it. The exact amount of the credit is determined based on exactly how much you make, but it is sizeable and should put a big dent in anything you owe on your unemployment compensation if not wipe it out.
Being unemployed is no fun. If it happened to you in 2010, you need to understand you still have to pay taxes, but the pain can be minimized by the above.