Rhode Islanders Must Report Unemployment as Taxable Income

Submitted by SadInAmerica on Sat, 03/07/2009 - 2:55pm.

If you collected unemployment benefits last year, must you include them, as income, on the tax return you're preparing now? That's the question a woman from Cranston asked MoneyLine...

Q: I'm one of the thousands of Rhode Islanders who is unemployed and has been collecting unemployment this past year. So I wanted to know how to handle that with taxes — I've never had to do it before. I know that I did opt to have taxes taken out of my unemployment. Do I have to wait for a form [and do you know] when they'll be able to get that out to people, whether or not it'll be sent in a timely fashion?...

— R.A., Cranston

A: Unemployment benefits count as income for federal and Rhode Island income tax purposes, said Jacquelyn H. Tracy, president-elect of the Rhode Island Society of Certified Public Accountants.

* So if you received unemployment benefits last year, remember to list them as income when you fill out your federal income tax return this season — they're taxable.

(Use Line 19 of the U.S. Form 1040, Line 13 of the U.S. Form 1040A, or Line 3 of the U.S. Form 1040EZ.)

* People who received unemployment benefits for the first time last year may forget to list their benefits on the return they're preparing now, covering 2008, so it's an important point to keep in mind, said Tracy, a partner at Mandel & Tracy, LLC, a CPA firm in Providence.

* The Rhode Island Department of Labor and Training must, by law, send you a Form 1099-G, listing, among other things, how much in unemployment compensation you received, and how much (if any) income tax was withheld.

* The agency must send a copy to you, and a copy to the IRS, too. The IRS will automatically check your return to see if the figure from the Form 1099-G matches the amount you listed on your tax return.

* So if you forget to list your benefits on your return this filing season, the IRS will eventually catch up with you, and you could be liable for back taxes, plus interest and penalty.

The state agency has been mailing out the forms in batches; the last batch was to go out yesterday, agency spokeswoman Laura Hart said. So if you haven't received yours yet, you should receive it soon.

A couple of other points:

Unemployment benefits are taxable at the federal and Rhode Island level. When you list them as income on your federal return, they will, in effect, flow over automatically onto your Rhode Island return. (So you don't have to list them separately on your Rhode Island return.)

Part of the economic stimulus legislation that's being kicked around in Washington would make unemployment benefits tax-free, at least temporarily. But even if the provision were adopted, it probably would apply only to benefits received after Jan. 1, 2009, not to benefits you received last year.

Q: Governor Carcieri had a research group on extending the estate tax amount . . . . to revise it from $675,000, and I don't know how they made out.

— G.L., Providence

A: The group is tentatively scheduled to meet on Wednesday to come up with its final decisions on proposed reforms to Rhode Island's tax structure — including the estate tax.

* Here's how things stand now, in a nutshell:

* When you die, an accounting is generally made of the things you owned and the debts you owed as of that date.

* If the net amount exceeds $675,000, your estate may have to pay a tax to Rhode Island, known as the estate tax or death tax.

(The tax gets paid first, before the remainder of the estate is distributed to heirs and other beneficiaries. Some estates aren't subject to the tax even if the estate's value exceeds $675,000; some are.)

* That $675,000 threshold is the lowest of any state in the nation, Governor Carcieri's tax study group found; many states set their thresholds higher, so that fewer estates wind up having to pay the tax.

* Rhode Island's $675,000 threshold amount was set in 2001. If it were updated to reflect inflation, it would stand at about $810,000 today. (And that's according to a federal government calculator, which uses a conservative measure of inflation.)

* There's a federal estate tax, too; the federal threshold is $3.5 million.

* Carcieri's tax group has tentatively recommended that Rhode Island's threshold be increased to either $1 million or $3 million.

Questions about your money matters? Call us at 1-401-277-7484 and leave a message, or e-mail: moneyline@projo.com

Whether you phone in or e-mail your question, please be sure to include your name, home town and home phone in case we need to reach you. Sorry, no personal replies; as many questions and issues as possible will appear here.

Neil Downing - January 31, 2009 - source MoneyLine 

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Submitted by SadInAmerica on Sat, 03/07/2009 - 2:55pm.