If you experience a period of unemployment or are currently unable to find work, the last thing you're probably thinking about is your taxes. But since you still need to file a tax return, you may be interested in some of the tax benefits available to you. Watch this video to learn more about how being on unemployment may affect your taxes.
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Hello, I’m Tammy from TurboTax with some important information for unemployed taxpayers.
If you experience a period of unemployment or are currently unable to find work, the last thing you’re probably thinking about is your taxes. But since you still need to file a tax return, you may be interested in some of the tax benefits available to you.
If you receive unemployment compensation during the year, regardless of the amount, it’s fully taxable and you must report it on your tax return. Your state will report the total amount to you on a Form 1099-G. And if you elect to have federal and state income taxes withheld from your unemployment payments, the 1099-G will report those amounts as well. There are, however, deductions available that cover the cost of looking for work and relocating for a new job.
You may spend a significant amount of time each week looking through employment opportunities, going to interviews, mailing resumes and applying for jobs in person. Luckily, if you itemize deductions, you can deduct some of the expenses you incur when searching for a job. The expenses you may be able to deduct include the cost of travel and transportation, the expense of purchasing paper, envelopes and stamps for mailing resumes, and even the fee you pay to an outplacement agency that helps you find a job.
And if you find a new job that requires you to relocate--you may be eligible to deduct your moving expenses. Deductible moving expenses will cover the cost of transporting yourself and your personal effects to the new area, and in some cases, the cost of renting a storage unit for your household items.
If at any point during a period of unemployment you find it necessary to make an early withdrawal from your IRA, you should know that the IRS allows you to do so without incurring the 10-percent penalty that normally applies. However, you must use the funds for an approved purpose, like paying your medical insurance premiums. If you end up owing taxes to the IRS, and due to your lack of work you are unable to pay it in full, you should look into setting up a monthly payment plan or make an offer in compromise to request a reduction in the amount of tax you owe. For more on that, see our video, “IRS Payment Plan for Taxes” at TurboTax.com.
Remember, when you file with TurboTax, you don’t need to know a thing about taxes. We’ll ask you simple questions and guide you step by step to help you get your biggest tax refund.