Are unemployment payments earned income for Federal tax purposes?


N

Nestor

Are unemployment payments earned income for Federal tax purposes?

Maybe more helpful is the reason I ask. A friend is receiving
unemployment payments but also owns some stock in Borders. She would
like to sell this stock and deduct the loss from her taxes on her
unemployment payments.

So, 1st, is unemployment earned income?

2nd, can she deduct the loss from her federal taxes when her income is
unemployment (and negligible interest income)?
 
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B

Barry Margolin

Nestor <[email protected]> said:
Are unemployment payments earned income for Federal tax purposes?

Maybe more helpful is the reason I ask. A friend is receiving
unemployment payments but also owns some stock in Borders. She would
like to sell this stock and deduct the loss from her taxes on her
unemployment payments.

So, 1st, is unemployment earned income?
It's ordinary income, but I don't think it's earned income. But for her
purposes, I don't think the difference matters (it's mostly only
important for eligibility to make IRA contributions). There are a few
exceptions, see:

http://www.irs.gov/publications/p17/ch12.html#en_US_2011_publink100017203
1
2nd, can she deduct the loss from her federal taxes when her income is
unemployment (and negligible interest income)?
You can deduct up to $3K of net capital losses against ordinary income,
it doesn't matter the form of income. The remainder has to be carried
forward to future years.
 
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A

Alan

Are unemployment payments earned income for Federal tax purposes?

Maybe more helpful is the reason I ask. A friend is receiving
unemployment payments but also owns some stock in Borders. She would
like to sell this stock and deduct the loss from her taxes on her
unemployment payments.

So, 1st, is unemployment earned income?
No it is not earned income. It is taxable gross income that she reports
on Line 19 of Form 1040.
2nd, can she deduct the loss from her federal taxes when her income is
unemployment (and negligible interest income)?
Her Net Capital Loss from Line 21 of Form 1040 Schedule D, gets posted
to Line 13 of Form 1040. However, it is limited to a maximum of -$3000
unless she files as married-separate )-$1500). Any net loss in excess of
$3000 can be carried forward to the next tax year.

So.... yes she can deduct her capital losses from her other gross income.
 

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