The Internal Revenue Service recently announced it will allow unemployed workers to draw their first $2,400 worth of unemployment benefits income tax-free this year.
Because individuals can choose whether or not to have taxes taken out of their payments, this means a decision for those who draw the benefits, especially those who plan to draw them for a short period of time.
As the deadline for filing 2008 returns on April 15 approaches, record numbers of North Carolinians are without work and drawing unemployment insurance benefits. Though these workers will have to pay an income tax on unemployment benefits drawn in 2008, the new measure will affect all claims filed in 2009.
The state’s most recent unemployment statistics were released last week by the North Carolina Employment Security Commission, and revealed 10.7 percent statewide unemployment in the month of February — the highest it has risen since the state began to calculate the rate with seasonal adjustments in 1976.
The release also announced an additional $25 a week will begin showing up on unemployment benefits in April, a measure funded by the American Recovery and Reinvestment Act, commonly called the federal stimulus package.
This IRS measure to allow citizens to draw their first $2,400 of unemployment insurance benefits tax-free is also part of the legislation.
“We learned that a record 5.6 million people (nationwide) were receiving unemployment benefits in the middle of March,” IRS Commissioner Doug Shulman said. “This underscores the need for the relief provided by the American Recovery and Reinvestment Act, which includes making the first $2,400 of unemployment insurance exempt from tax. I urge all unemployed workers to take this special tax break into account as they plan their tax withholding and quarterly estimated tax payments for the year. This change offers a helping hand to millions of Americans who are out of work and struggling to make ends meet.”
Jobless workers can choose to have tax withheld from their unemployment benefits. If they make this choice, 10 percent is set aside..
Should one of these workers choose to have this amount withheld from their payments, and not collect in excess of $2,400 in unemployment benefits throughout the year, the money will be refunded to them when they file their 2009 income tax return.
After the first $2,400 is drawn, the rest of the benefits are completely taxable.
Should an out-of-work worker decide not to have this amount withheld from their payments, they are still responsible for paying the taxes on all payments received in excess of the $2,400 mark when they file their 2009 returns.
A release sent out last week by the IRS Media Relations Department for North Carolina and South Carolina in Greensboro specified that in the case of married couples who both draw unemployment benefits, the tax-free exemption applies to payments received by both the husband and wife.
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