In today’s tough economy, practically no job is safe. At any time, you can receive a pink slip and be out of work. What does this mean for you and your family? Here are the tax implications for some aspects of losing a job:
If you are terminated, you can probably collect unemployment benefits from your state. You have to apply for them by contacting your local unemployment office.
Unemployment benefits are fully taxable to you. You can opt to have federal income tax withheld from your benefits at the rate of 10%. You might want to make this election to avoid the need to make quarterly estimated tax payments if the benefits, along with your other income, mean you’ll owe taxes in excess of the withholdings from your paycheck to date.
When you leave your job, you may continue to enjoy certain benefits.
Outplacement services. If your employer pays for outplacement services, including an office from which to look for another job and job counseling, you aren’t taxed on this benefit.
Portable benefits. Some perks can come with you (you’ll have to continue to pay for them but usually at more favorable rates than you could obtain on your own):
Any expenses you incur to look for another job can be deductible. Such costs include printing and mailing resumes, traveling to interviews, and paying job agency fees.
The deduction for these costs is treated as a miscellaneous itemized deduction, so you have to itemize to claim the write-off. Then, the actual deduction is limited to amounts in excess of 2% of your adjusted gross income for the year.
Your locality may be economically depressed; finding job openings may require you to relocate to a different part of the country. Fortunately, the cost of moving your family and household items to your new area may be deductible. You have to meet a distance test and work for a certain time in your new location, but if you qualify for the deduction, it’s yours even if you don’t itemize other deductions.
If your new employer reimburses you for these costs, you aren’t taxed on them.
Rules limiting loss deductions to cash investments and personal liability notes. An exception for real estate treats certain nonrecourse commercial loans as amounts “at risk.”