The good news is that millions of Americans lost their jobs or saw their wages reduced in 2009 have some hope.

The American Recovery and Reinvestment Act of2009 includes a provision that allows up $2,400 of unemployment compensation to be exempted by federal taxes for 2009. In the event that both taxpayers received unemployment compensation in 2009, one can exclude the first $2,000. Any amount exceeding $2,400 as well as severance payments are considered taxable income.

Federal withholding unemployment compensation benefits is voluntary. You may owe taxes on benefits received above $2,400 depending on how much federal taxes are withheld.

Unemployment compensation must be reported on Form1099-G. This information will be recorded on lines 19 to 13 of Form1040A, Form 1040A, or Form 1040EZ.

People with low income and unemployed people should look into whether they are eligible for the Earned Income Tax Credit (EITC). EITC is based upon income levels. Jessi Dolmage, spokesperson of 2nd Story Software, Inc., makers TaxACT, describes. “Congress raised the income limits for 2009, meaning more families qualify for the refundable credit.”

You must have worked for part of 2009 in order to be eligible for EITC. Also, your earned income must not exceed:

* $43,279 ($48,279 married filing jointly) with three or more qualifying children

* $40,295 ($45,295 married filing jointly) with two qualifying children

* $35,463 ($40,463 married filing jointly) with one qualifying child

* $13,440 ($18,440 married filing jointly) with no qualifying children.

You could qualify for the following credit amounts:

* $5,657 with three or more qualifying children

* $5,028 with two qualifying children

* $3,043 with one qualifying child

* $457 with no qualifying children.

Dolmage pointed out another possibility of deduction — expenses related job searches. You may be able to deduct costs such as the cost of preparing and mailing copies of your resume, outplacement agency fees, travel expenses to and from interviews and moving costs. (See IRS Publication 521)

You’re not eligible for the deduction if your job search is new or has been ongoing for more than one year.

Even if you are unable to pay your taxes, you should still file your federal returns and pay as much by April 15 as possible to avoid interest and penalties. For information on payment options, including installments and short-term extensions of payments, contact the IRS.

Online or in-person tax preparation software can help you understand the tax implications and EITC. The best solution is the one that allows everyone to prepare, print, and electronically file a federal return. TaxACT Free Federal Edition gives you step-by, detailed guidance and offers free assistance if needed. It also guarantees the maximum refund. Visit www.taxact.comStart your federal return free of charge