Job loss brings new tax issues to considerUnfortunately, many people are experiencing job loss during our current economic recession. The loss of a job creates many challenges, and tax issues may be among them.
By: Rosemary Heins, University of Minnesota Extension, Pine Journal
Unfortunately, many people are experiencing job loss during our current economic recession. The loss of a job creates many challenges, and tax issues may be among them.
The IRS recognizes that the loss of a job can create new tax situations for you. Their website, http://www.irs.gov/, includes a publication called ‘Tax Impact of Job Loss’ that can be very helpful to those in this situation. The publication includes information on what is taxable income, as well as some tips on potential deductions.
Some taxable items related to job loss include:
• Severance pay;
• Unemployment compensation;
• Pay received for accumulated vacation or sick time;
• Withdrawals from a pension plan, unless they are transferred to a qualified plan, such as an IRA; and
• If you are under age 59 1/2 years, an additional tax applied to the taxable portion of your pension.
Certain expenses of job hunting, however, may be tax deductible. Some potential tax deductions are:
• Employment and outplacement agency fees;
• Costs of typing, printing and mailing copies of your resume to potential employers;
• Travel expenses for job search and interviews, as long as the purpose of the trip was primarily the job hunt;
• Moving costs incurred because of a change in your job location, if you meet certain criteria related to distance moved and timing of the move; and
• College coursework, if you have decided to better your chances of finding a new job by taking courses, and if you qualify for the Hope or Lifetime Learning educational credits
Keep good records of all expenses, since to claim these you will need to file Form 1040 and a Schedule A. Job hunting costs are a miscellaneous itemized deduction, and subject to a 2 percent adjusted gross income limitation.
Additionally, if you think this is your opportunity to start your own business venture, the IRS provides information and classes for new business owners.
Be smart and get as much information as possible if you’ve lost your job. Taxes may be the last thing on your mind at this difficult time. However, being aware of how taxes will apply to you may save you a future headache. Check out ‘Tax Impact of Job Loss’ through http://www.irs.gov/.
Rosemary Heins is a family resource management educator with University of Minnesota Extension.