[credit provider=”Matt Honan via flickr” url=”http://www.flickr.com/photos/honan/453195084/sizes/m/in/photostream/”]
Some jobless Americans may get a nasty surprise when they go to file their taxes this year. Unemployed insurance benefits from 2011 will remain taxable, according to the Associated Press.
Though benefits have been taxable for many years, a 2009 break in legislation allowed the first $2,400 of benefits to go tax-free, said Neil Johnson, a CPA at The Dolins Group.
“I’m a little surprised that something like that didn’t occur in 2010 and 2011 given the high number of unemployed people there are,” he said.
But even more disconcerting is the lack of awareness among these taxpayers. One option is to submit a request in advance for taxes to be withheld from benefits, but those who strongly depend on that money year-round may be more inclined to hold onto every dollar they can get, Johnson said.
Terry Lemons, an Internal Revenue Service spokesman, suggested in the AP article that most people continue to file their taxes regardless of whether they can afford the taxes due.
Johnson agrees: “It’s important to have a timely file tax return. If there is a balance due with the return, you don’t want to compound the late payment penalty with a late filing penalty.”
There is a silver lining, however.
“If somebody lived on unemployment benefits for the (whole) year, chances are they’re not going to pay any tax on it,” Johnson said. But a person living with an employed partner or who was laid off half-way through the year will pay.
Johnson added that those who owe less than $25,000 to the IRS can file a streamlined instalment agreement that enables them to pay off their balance within a five-year time frame.
And for those who hustled to find a new job in the past year, search-related expenses can still be filed as miscellaneous itemized deductions so long as the total amount equals more than two per cent of their adjusted gross income, said Johnson.