Key Takeaways
- If you’re unemployed, filing your taxes early can help, because you may get a tax refund if you moved into a lower tax bracket after losing your job.
- Before you withdraw money from any retirement account, make sure you understand what the tax implications for that particular type of account will be.
- You may be able to claim the Child and Dependent Care Credit if you’re looking for a job.
- All income earned from freelance work or a side gig is potentially taxable, but you may be able to take advantage of business deductions and tax credits if you’re earning self-employment income.
1. You may still need to file taxes, even if you’re unemployed
Even if you aren’t currently earning wages from a job, you might still have to file taxes. If you lost your job during the year, you'll have to file for 2024 if you earned more than:
- $14,600 as a single filer under the age of 65
- $29,200 and are a joint filer or qualifying surviving spouse under the age of 65
Filing early can help; you may get a tax refund if you moved into a lower tax bracket after losing your job. Remember, severance pay, and unemployment income has to be included in your taxable income.
TurboTax Tip:
Even if you aren’t currently earning wages from a job, you might still have to file taxes if you earned more than $14,600 as a single filer under the age of 65 or $29,200 and are a joint or qualifying surviving spouse filer under the age of 65 (tax year 2024).
2. Understand the tax implications if you’re withdrawing money from retirement accounts
If you're looking to supplement your income, you may decide to take an early withdrawal from your 401(k), IRA or other retirement account. While you can usually withdraw money as needed, be aware that early withdrawals from 401(k) and traditional IRAs typically have a 10% tax penalty in addition to being subject to income taxes.
- Roth IRAs generally have a 10% tax penalty for early distributions, but only on the investment earnings, which means you can usually withdraw any amount of your original contributions tax-free before the age of 59½.
- Before you withdraw money from any retirement account, make sure you understand what the tax implications for that particular type of account will be.
3. Claim certain childcare expenses
You may be familiar with the Child and Dependent Care Credit as a working parent, but did you know that you can claim it if you're looking for a job, too? This credit allows you to claim the costs of qualifying child and dependent care that you paid while actively looking for a new job.
To claim the Child and Dependent Care Credit, use Form W-10 to request the necessary information from your care provider(s), and then complete Form 2441. Check the guidelines on who qualifies as a care provider; it can’t be:
- your spouse
- the child’s other parent, if different than your spouse
- any dependent whom you or your spouse claims on your tax returns
4. Track income from your side gigs
Looking to bridge your income with freelance work or a side gig as a rideshare driver? Keep in mind that all of the money you earn counts as income and is potentially taxable.
- If you earn $600 or more from a company, they should provide you and the IRS with Form 1099-NEC (1099-MISC in prior years), which you use to report your income. If you earn less than $600, you are still required to report the income, even if you do not receive a 1099.
- If you receive payments through online payment services such as PayPal, you might receive a 1099-K. Payers will also send these forms to the IRS to report your income.
- The IRS may consider your side-gig income as self-employment income, in which case you'll file a Schedule C and Schedule SE with your tax return.
The IRS is gradually phasing in new 1099-K reporting requirements for payments from third-party processors like Venmo and Paypal. In 2021, Congress changed the reporting threshold from over $20,000 in payments and more than 200 transactions to over $600 in payments regardless of the number of transactions. But instead of using the new $600 threshold right away, the IRS applied the previous reporting threshold for the 2022 and 2023 tax years. For the 2024 tax year, the IRS is using a $5,000 threshold, regardless of the number of transactions. The threshold will drop to $2,500, regardless of the number of transactions, for the 2025 tax year. Starting in 2026, the $600 threshold will apply.
If you're earning self-employment income, consider taking advantage of the business deductions available to you, such as:
- business portion of your home
- business mileage on your car
- dues and subscriptions paid to business-related organizations
- necessary tools and equipment
- tuition for related education
5. Rules can change if you go to school
If you decide that you'd rather take classes instead of looking for a job, there are some tax credits available that you should be aware of:
- American Opportunity Tax Credit (AOTC) – You can receive a credit of up to $2,500 for qualified undergraduate education expenses paid in a year for the first four years in school. That includes money spent on tuition, books, supplies and school fees, but doesn't apply to living expenses or transportation.
- Lifetime Learning Credit – This credit applies to undergraduate, graduate, non-degree and vocational education students. Unlike the AOTC, there's no cap on how many years you can claim it. It allows you to claim 20% of the first $10,000 you paid toward tuition and fees, up to $2,000. If you earned more than $80,000 ($160,000 if you file jointly) in 2024, however, your credit is reduced.
- Student Loan Interest Deduction — This deduction allows you to deduct up to $2,500 of the interest you paid on a qualified loan for higher education. If you file as single in 2024 and have earned more than $80,000 ($165,000 if married filing jointly) in the same year that you’re claiming the deduction, the deductible amount is reduced.
6. Claim job-hunting expenses
The job-hunting expenses you can claim have changed, with many of the deductions ending after the 2017 tax year. If you file an amended return for a tax year in which you looked for employment prior to 2018, you may be able to claim job-hunting deductions, including:
- cost of resume preparation
- travel expenses for out-of-town interviews or career fairs
- postage and other mailing fees
- employment and placement agency fees
To qualify for these deductions, there are certain stipulations. You must:
- itemize your deductions
- search for a job in the same field as you were previously employed
- not be a first-time job seeker
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