On heels of more bad news, there’s hope in latest numbers filings for jobless benefits–but those bennies are taxed, too

March 25th, 2010 by Mike Hinshaw

Maybe it’s beginning to turn. Reports from housing and unemployment rates remain mixed-to-dismal, but the numbers of applicants for unemployment benefits is doing better than experts expected–after rising during the January and February.

The Associated Press reports today: “New claims for unemployment benefits fell more than expected last week as layoffs ease and hiring slowly recovers.”

A “seasonal adjustment” to the stats is involved, though, as Marketwatch reports, also today: “Initial claims fell 14,000 to a seasonally adjusted 442,000 in the week ended March 20, the Labor Department said Thursday.

“The latest figures reflect annual revisions using new seasonal factors, and put claims 10,000 lower than they would have been under the previous assumptions, a Labor Department official said. Without the annual revision, claims would have totaled about 453,000. Economists surveyed by MarketWatch predicted claims would drop to 450,000. See our complete economic calendar.”

The AP explains that the seasonal adjustment addresses such factors as jobs ending for temporary holiday-workers.
“The department updates its seasonal adjustment methods every year, and revises its data for the previous five years. Seasonal adjustment attempts to filter out expected changes in employment such as the layoff of temporary retail employees after the winter holidays. The goal of seasonally adjusted figures is to provide a more accurate picture of underlying economic trends.”Excluding seasonal adjustment, initial claims fell by more than 30,000 last week to 405,557.”

The ‘cusp’ of a jobs upturn?

The AP account also quotes one economist as saying we’re on “the cusp of a hiring recovery,” but also that “Carl Riccadonna, senior U.S. economist at Deutsche Bank, said claims need to fall below 400,000 before the economy will consistently create jobs. Claims will likely fall below that level sometime in April, Riccadonna wrote in a note to clients.”

Earlier in the month, a Reuters’ report–based on January data–described a bleak picture in “[n]early 200 metropolitan areas [where] reported jobless rates . . . [were] at least 10 percent in January, showing that unemployment problems persist at the local level.”

Perhaps to be expected, given the high rates of foreclosure and bankruptcy filings, California was singled out as particularly hard hit. But so was one area in Illinois: “Rockford, Illinois, had the largest increase in unemployment from a year earlier, of 5.8 percentage points, primarily due to manufacturing job losses, said the Labor Department.”

Reuters said the largest gains in hiring were in an area of Washington state (3,000 jobs) and one in New Jersey (1,900).

Of particular interest during tax season might be this quirkily headlined March 22 post from the Contra Costa Times, via Philly.com:

Unemployment can be added wrinkle at tax time

It’s a thorough introduction to the vagaries of the tax code that face any number of folks without jobs, regardless of  “whether you got laid off, fired or took a buyout package . . . .

“Some who received a hefty severance or voluntary buyout package could end up in a higher tax bracket and owing taxes. Conversely, taxpayers whose income took a big hit may now qualify for tax breaks.”

That seems like common sense. But here’s a nugget many may not know:

Unemployment benefits are taxable: Form 1099-G

“Surprising to many,unemployment benefits are considered taxable income. The feds began taxing unemployment payments starting in 1979. But for tax year 2009, the first $2,400 of unemployment payments are not taxable at the federal level due to stimulus legislation passed last year.”

Apparently, if you have obtained unemployment benefits during 2009, you should have already received a form 1099-G, “showing the amount of taxable unemployment benefits paid in the prior year.” If you haven’t received yours, you can download one here (it includes IRS contact info).

Here’s some more highlights from the article:

  • Taxpayers who itemize can deduct job-hunting expenses under the category of miscellaneous itemized deductions.
  • People who have seen a steep drop in income should be aware of the little-known Savers Credit . . . a federal income tax break that rewards low- and moderate-income taxpayers for contributing to an IRA, 401(k) or other qualified retirement plan.
  • The stimulus plan significantly increased the Earned Income Tax Credit.
  • If you were laid off and got a big severance package, your income level could go up as could your tax bracket. The same scenario could happen if you took a voluntary buyout package.
  • Taxpayers should also aware they could get hit with penalty taxes when making early withdrawals from retirement accounts.

There’s also separate sections for “TAX TIPS FOR THE UNEMPLOYED” and “TAX CREDITS TO WATCH.”

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If you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”),  bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, please know the laws have changed recently. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

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