Lisa Simpson
Mar 26,2010
In: Finance

Tax Bills may now Arrive as Unpleasant Surprises

Tax bills may now arrive as unpleasant surprises.

The ordinary American is harassed beyond words – perhaps the job has vanished, the house too has gone or sunk underwater and yet friends and neighbours are full of stories about their visits to strange new places in the world. What will the man in the street do when on top of all this arrives a surprise in the form of a tax bill? The friends can be ignored but not the tax man. There are various kinds of unexpected taxes that can add insult to the injuries Americans are suffering now.

Taxes are levied on unemployment benefits. Millions have been without jobs for months and dependent on their unemployment cheques so that there is food on the table. Last November the Congress stretched the benefit period up to 20 weeks for workers in those states that have the highest rate of joblessness.
Many are not aware of the fact that some of these benefits invite taxes. The economic stimulus package that was enacted in 2009 excluded the initial $2,400 of the benefits from unemployment from the gross income of 2009. For married couples who are unemployed each partner is entitled to an exemption of a maximum of $2,400 in benefits.

The recipient of unemployment benefits should get Form 1099-G that indicates the amount of benefit availed of in the year. The unemployment benefit that is above $2,400 should be reported on line 19 of Form 1040 and on the line 13 of Form 1040A on the line 3 of Form 1040EZ.

The exclusion of $2,400 was not stretched to cover 2010. It means all of the unemployment benefits that one would receive for the current year would be taxed. IRS Publication 525 could be consulted for further information.

To bring down the deductions one should try and avail of all the deductions one is qualified for. For instance the costs related to searching for another job would be deductible. Expenses related to printing, mailing resume, traveling for giving interviews and agency fees related to job placements would be also deductible.

Generally debt that has been forgiven by the lender is taken to be income by the tax authorities. It is referred to as “phantom income” – can’t be used to shop in the grocer’s shop. But exceptions are being made for the taxpayers who have become victims of this housing crisis. As per law passed in 2007 mortgage debt that has been forgiven is not taxed; but the property has to be the primary residence.