I wish you the best in your job search.
But I also must provide some unwelcome news. As this week's Weekly Tax Tip notes, even if you're unemployed, you still could face some tax issues.
Paying tax on unemployment: First, the biggie. Unemployment benefits are taxable income.
Wait, you say. You heard some unemployment is tax-free. That was the case years ago; in 2009, up to $2,400 in unemployment benefits were not taxed. But that tax break was for one tax year only and in 2010, the prior law under which all -- yes, every single penny -- unemployment benefits are taxable went back in full force.
That means that you must report as income all your unemployment benefits -- which in many places have been cut, both in dollar amount and length of time you can receive them -- even though they cover only a fraction of your former salary.
You have the option when you apply for benefits of having the tax withheld, but most folks don't. That's understandable. You're already taking an income hit, so you need all you can get to go toward your living expenses.
But know that if you don't pay tax on unemployment via withholding or estimated tax payments, you could face a tax bill, and possible underpayment penalties, when you file your return.
So run the numbers on your unemployment and other income before filing season arrives to at least get an idea of where you'll stand tax-wise.
Examine the EITC: Now for a tiny bit of good jobless tax related news. Since your income has dropped, you now might qualify for the earned income tax credit (EITC).
This tax break is for folks who work (or worked for part of the tax year), but didn't make that much money. A widespread misconception is that the EITC is only for folks with kids. Not true. While filers with families can bet a bigger benefit, single taxpayers also qualify.
To qualify for 2013 EITC benefits, your earned income and adjusted gross income (AGI) each must be less than:
- $46,227 ($51,567 married filing jointly) if you have three or more qualifying children
- $43,038 ($48,378 married filing jointly) if you have two qualifying children
- $37,870 ($43,210 married filing jointly) if you have one qualifying child
- $14,340 ($19,680 married filing jointly) if you don't have any qualifying children
- $6,044 if you have three or more qualifying children
- $5,372 if you have two qualifying children
- $3,250 if you have one qualifying child
- $487 if you don't have any qualifying children
For specifics on your situation -- whether you qualify and if so for how much -- check out the IRS' interactive EITC Assistant. The online site looks to still be keyed to the 2012 tax year, but it will give you an idea of where you stand.
Other unemployment-related tax breaks: The costs you've incurred looking for a job might be deductible as an itemized expense on Schedule A. The restrictions here -- itemization instead of claiming the standard deduction, percent of AGI must be met -- make this a difficult deduction for most folks, but just in case, hang onto your job-search receipts.
You also might be able to tap retirement accounts to make ends meet. But in most cases, you'll at least end up owing taxes on any tax-deferred contributions and/or earnings. So think carefully about this option.
But if you turned your job loss lemons into entrepreneurial lemonade, there are quite a few small business tax breaks you can claim.
I hope some of this tax information is helpful in this difficult time. And I hope you find a job that you want soon so you no longer have to think about the tax implications of unemployment.
"Unemployed" by winnond via FreeDigitalPhotos.net
You also might find these items of interest: