Unemployment, severance benefits can affect tax situation

Millions of taxpayers are headed into the current filing season having spent at least part of last year collecting unemployment benefits.

This is likely to be the case next year as well, with a nationwide unemployment rate that remains stuck near the 10 percent level. Millions of other Americans, according to the Department of Labor, have simply given up on their job searches, and as a result don''t show up in the official unemployment rate.

A recent column from California''s Contra Costa Times offered taxpayers who collected unemployment benefits last year some tax tips.

For example, the column notes that the first $2,400 in benefits collected in tax year 2009 are not taxable due to a provision in the federal stimulus bill. Another hazard cited for unemployed workers are the penalties they may incur if they are forced to withdraw money from retirement savings accounts.

The column also adds that severance and voluntary buyout packages are treated like taxable income as well, which could have an impact on one''s tax bracket.

Still, the tax code offers other benefits to help ease the financial burden of people who have been struggling to find work and keep up with their taxes and bill payments. Taking the time to talk to a tax preparer is a good place to get started.

Liberty Tax Service provides computerized income tax preparation and electronic filing. Each tax office offers customers audit assistance, a money back guarantee, and free tax return checking.