Taxation of Unemployment Income

[Edward]

Have several clients that have lost their jobs and are currently drawing unemployment compensation from the state. I believe I read somewhere that such compensation will be taxable for 2009 for WHEN IT EXCEEDS A CERTAIN AMOUNT. Have any of you read about this change? I need this info so I can start working on 1040ES for them. Thanks.

[JRS]

From CCH analysis:

Currently, unemployment benefits are

included in a recipient’s gross income for

federal income tax purposes. The new

law temporarily excludes up to $2,400

of unemployment compensation from a

recipient’s gross income for 2009.

[JohnH]

Would you really want to adjust the estimate based on the $2,400 exclusion of unemployment income?

I think I'd ignore it when calculating a 2009 estimate. When people collect unemployment compensation, they frequently wind up earning small amounts from other sources, most of which withhold no income tax (if anything). In all but very special cases, I'd be inclined to assume it's all taxable for estimating purposes in order to avoid ugly surprises next year.

[michaelmars]

johnh is right

[kcjenkins]

Yes, John is right, that exclusion is too small to be worth changing an estimate for, especially since there are so many ways that it might not really reduce their tax liability in the end. If anyone asks me, I'm going to tell them to assume it will all be taxable, because if it is not, they will be a bit better off at year end, but if it is, they will not be owing when they are already hurting. And if they just trust me to calculate the ES, I will ignore it.