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Taxes and Jobless Benefits

For 2010, payments are taxable but pay attention to deductibles

Q. Will I have to pay taxes on the unemployment benefits I collected last year even though I didn't have much of an income? Also, can I deduct the cost of a job placement service?

ATE tax deductions

— Helen King/Corbis

A. Yes and yes. First, you must pay taxes on your total 2010 unemployment benefits, unlike the rules for 2009, which made the first $2,400 tax-free.

And yes, you can deduct certain expenses related to your job search, including the costs of copying résumés, traveling for job interviews and hiring a placement service.

Also, you're probably in a lower income bracket, so it's worth adding up your out-of-pocket medical expenses. If they're more than 7.5 percent of your adjusted gross income, you can deduct the amount that exceeds that threshold.

Carole Fleck is a senior editor at the AARP Bulletin.

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