Saturday, July 11, 2009

2009 Tax Code Changes Affecting the Unemployed

We just got back in the office from a long week at the IRS Nationwide TaxForum, and we have a lot to share about 2009 tax code changes. In light of the current economic crisis our country is facing, the IRS has announced changes to the ’09 tax code that may provide some relief to taxpayers who have recently become unemployed. While the level of benefit for these changes may be marginal for some, it is important to gain awareness of the changes sooner rather than later.

Unemployment Compensation

With unemployment nearing 10%, there are millions of American’s who will rely on unemployment checks this year to keep food on their table and a roof over their heads. What some people collecting unemployment don’t realize (and what many often ignore) is that unemployment compensation is considered taxable income. And while they can elect to withhold taxes from their unemployment checks, this is often unrealistic because it places additional financial stress on the taxpayer. As a result, many people collecting unemployment face quite a painful situation the following tax year when they owe taxes on their unemployment compensation.

There will be some relief for unemployed taxpayers in 2009, when the first $2,400 in unemployment compensation will be excluded from their income (and therefore not taxed). This provision will only affect unemployment compensation earned in ’09.

If you only plan to incur $2,400 or less in unemployment compensation this year, you would benefit from not withholding taxes from this income to maximize your available funds.

COBRA Premium Assistance

One of the most difficult decisions facing Americans after losing their jobs is whether to maintain their healthcare benefits by enrolling in COBRA. While COBRA does help prevent individuals from forfeiting their group health coverage benefits, the cost of these benefits often increase substantially without their previous employer’s assistance. As a result, many Americans make the difficult decision to forgo health coverage altogether (especially if their only source of income is unemployment compensation, and if individual health coverage costs exceed those of COBRA).

There is, however, some relief to recently retired and unemployed American’s on COBRA. Qualifying individuals may elect to retain COBRA for as low as 35% of their plan’s monthly premiums, while the remaining 65% will be paid by their former employer (and subsequently credited against the employers employment taxes). This subsidy will last for a period of up to 9 months and is terminated upon the individual’s enrollment in another health plan (employer sponsored or individual). The subsidy is also terminated if the individual elects to receive Medicare.

Who Qualifies?

Individuals Eligible for this credit must meet the following requirements:
  • Must have elected to receive COBRA coverage. If coverage was initially declined, the individual will get an additional 60 days to elect to receive coverage after they receive notice of the special election period.
  • Must have had their employment involuntarily terminated
  • Is eligible for COBRA between September 1, 2008 and December 31, 2009
  • Earn less than $125,000 ($250,000 for those filing married filing jointly) to obtain full benefit. The subsidy gets phased out if you earn $125,000 - $145,000 ($250,000 - $290,000 for those filing married filing jointly)

If you would like more information about the tax code updates discussed above, you can visit these websites:
Unemployment Compensation Tax Exemption
Employers Tax Guide (see page 8 for COBRA information)
COBRA Premium Assistance Credit

No comments:

Post a Comment