All or part of unemployment benefits received in 2009 will be tax free for many unemployed workers, according to the Internal Revenue Service.

"This morning we learned that a record 5.6 million people were receiving unemployment benefits in the middle of March," said IRS Commissioner Doug Shulman."This underscores the need for therelief provided by the American Recovery and Reinvestment Act, which includes making the first $2,400 of unemployment insurance exempt from tax.

"I urge all unemployed workers to take this special tax break into account as they plan their tax withholding and quarterly estimated tax payments for the year. This change offers a helping hand to millions of Americans who are out of work and struggling to make ends meet."

Under the American Recovery and Reinvestment Act, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their tax return next year.

For a married couple, the exclusion applies to each spouse, separately. If both spouses receive unemployment benefits during 2009, each may exclude from income the first $2,400 of benefits they receive.

The new law doesn't affect the return taxpayers are filling out now. Unemployment benefits received in 2008 and prior years remain fully taxable.

Unemployed workerscan choose to have income tax withheld from their unemployment benefit payments. Withholding on these payments is voluntary. However, choosing this option may help avoid a surprise year-end tax bill or a possible penalty forhaving paid too little tax during the year. Those who choose this option will have a flat 10 percent tax withheld from the benefits.

Thosewho expect to receive more than $2,400 in benefits this year should consider having tax withheld from their benefit paymentsin excess of that amount.