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

March, 2009

Americans who are receiving unemployment benefits will likely be eligible for some tax relief when they file their 2009 taxes. Due to the American Recovery and Reinvestment Act (ARRA), there will be a tax exemption for the first $2,400 of unemployment benefits that each tax filer receives. For a married couple who have both received unemployment benefits, each may use the exclusion for the first $2,400 of benefits. This exclusion won’t benefit Americans until they file their taxes for 2009.

Withholding tax from unemployment benefits is optional, but is suggested in order to avoid an unexpected year-end tax bill. The IRS recommends that unemployed workers who receive more than the exclusion amount of $2,400 should consider having taxes withheld, or check to ensure they have adequate taxes withheld.  The withholding rate for unemployment benefit income tax withholding is a flat ten percent.

The Form W-4V, Voluntary Withholding Request is used to begin or end tax withholding.


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