If you’re currently on the job market, you’ll have to approach your taxes differently when Uncle Sam comes knocking at your door. There are certain ways of filing, particular tax breaks to take, and it may become more crucial for you to consult a tax professional. Read below to prepare yourself as an unemployed taxpayer.
If you’ve been unemployed for some time, filing taxes may not cross your mind as easily as it did before. Perhaps you lost your job mid-year – if your income exceeded $10,000 (as a single filer) or $20,000 (as a joint filer), you have to file. If you file and you’re unemployed, you’re likely owned a refund, for the simple fact that a lower income means a lower tax bracket. The withholding from your former job was probably too high, resulting in a tax refund.
Being unemployed means no paycheck, but it does come with it’s perks at tax-filing. You can deduct many expenses that directly relate to your job search. Expenses include resume preparation costs, travel expenses (job fairs, out of town interviews), mailing fees, agency fees, and more. In order to claim these deductions, you must itemize and continue your job search in the (roughly) the same field as your previous job.
Depending on your income, you may qualify for additional tax breaks. Earned Income Tax Credit is often claimed. The credit increases with every qualifying child you have, and can be worth upwards of $6,000. Similarly, there is the Child Tax Credit and Child and Dependent Care Credit. The latter credits pertain to costs of childcare while you work or look for work. Lastly, Savers Credit is one of up to $1,000, for those that are contributing to a qualified retirement plan at a low income.
Along with your typical paycheck income, you must report severance pay (this includes payment for unpaid vacation days). These amounts will appear on your W2. If you received unemployment compensation, you must claim it as regular income as well. Your state will send you Form 1099-G with the amount that you are required to report.
Being unemployed requires you to flex your financial situation and the way you file your taxes. The most important points are to make sure you file (if required), report all income, and consult a tax professional to err on the side of caution. Most likely, a tax refund will come your way in consequence.
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