In 2009, the first $2,400 of unemployment benefits will be tax-free, under relief provided by the American Recovery and Reinvestment Act. Every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their tax return next year. For a married couple, the exclusion applies to each spouse, separately. Thus, if both spouses receive unemployment benefits during 2009, each may exclude from income the first $2,400 of benefits they receive.The new law doesn’t affect the return taxpayers are filling out now. Unemployment benefits received in 2008 and prior years remain fully taxable.

Unemployed workers who expect to receive more than $2,400 in benefits in 2009 should consider having tax withheld from their benefit payments in excess of that amount. Those unemployed workers who have already chosen to have tax taken out of their benefits, should consider the $2,400 exclusion in determining whether to continue to have tax withheld.

Also, as of this time, all unemployment benefits are still fully taxable by the states.

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