I'm afraid the residency problem is more complicated than you might think.
But let me get back to the simpler problem of his 2009 Federal return first....
He must report the full $16,798 as income. $2400 is excluded under the Recovery Act.
When he files his 2010 return, he has the option of declaring the $10,192 as an itemized deduction, or recalculating his 2009 return with the $10,192, and taking the difference in 2009 taxes as a refundable credit on his 2010 return. See "Repayment" in IRS Publication 525 for more details.
This last section applies only to the extent that he repaid the excess in 2010. To the extent that any repayments were made in 2009, they directly reduce the unemployment income reported. If not repaid until 2011, the adjustments would be made on the 2011 return due in 2012.
Expenses are another difficult matter. Publication 529 gives an indication of what expenses the IRS will concede without a fight, but there are almost certainly others allowable expenses. Examples given include:
Union dues and any fees paid to the union for placement assistance are deductible.
Transportation expenses may be deductible "if the trip is primarily to look for a new job." I'd have to research further to determine if he would have the option of claiming only 55 cents/mile, or would have to calculate the total 2009 expenses of maintaining the trailer, and multiplying by the ratio of total miles to "business" (e.g., job search) miles. Publication 463 has more information on that deduction. I would have to say that, at least for IRS purposes, he has no "tax home", so cannot claim personal expenses while "away from home" as a deduction. If had a tax home, and relocated for a job expected to last less than a year, some of the meal and lodging (well, never mind that) expenses would be deductible.
As for state residency, each state with a state income tax has its own residency laws.
Even if he was in Oklahoma in 2009, he doesn't appear to have an Oklahoma resident filing requirement, because Oklahoma bases "residency" considerations solely on the "domicile", "the place established as a person’s true, fixed, and permanent home". (definition from the OK NR511 packet).
West Virginia will declare him a resident if he spends more than 30 days in the state, "with the intent of West Virginia becoming his/her permanent residence", or if he is present in the state for more than 183 days.
Unemployment insurance is taxable in both OK and WV, including the $2400 Federal exclusion.
Have I covered everything?
Oh, yes, I almost forgot. If he was in WV for more than 183 days in 2009, one could make a good case for his filing a part-year-resident return, with his residency start date being when he first entered the state.
I think I'll be going to sleep shortly, so I'll switch this to Q&A, in case you have more questions.
I quickly read your answer this morning before I left home. I am just now returning home but have an appointment at 2:00 p.m. so won't be able to get back to this until after 9:00 p.m. this evening.
I do need to decide what expenses to take (mileage looking for work, etc.) Since he is living in W. Va and has been since the beginning of 2009 it seems he will be considered a resident even though he doesn't intend to stay there after the job is finished (or if it doesn't get started and he has to go elsewhere). If he gets the job it will probably last more than 1 year but that is not a certainty.
What is the rate of sales tax in W. Va.? He is living in Weston but I don't know the county. It looks like he will owe quite a bit to W. Va. Doesn't seem fair that he is trying to make ends meet (unemployed since 2008) and things just keep piling up.
It seems unbelievable that a person making no more than he did (only unemployment) would owe so much in state and federal taxes.
I will get back with you later this evening if you are still available. So far you have helped a lot.
Can I take mileage for him while he is looking for work. He traveled from Oklahoma to W. Va. stopping at various cities in various states that had jobs posted and signed the books. His travel mileage was 8,125 miles. Can he take any deduction for food or lodging (travel trailer lot rental) while driving across the country looking for work?
He probably won't pay the umemployment compensation back in one year. I think they have agreed to take it out of future unemployment checks.
I see that electricians may be targeted for audit next year to examine their expense deductions. I don't want him to fall in that category.