Tax Consequences of Losing Your Job

Tax Consequences of Losing Your Job

Tax Consequences of Losing Your Job

Given the current economic conditions, you may find yourself faced with tax questions surrounding a job loss and unemployment issues.

Here are some answers:

Q: What about unemployment compensation?

A: Unemployment compensation you receive under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you have withheld.

Note: The American Recovery and Reinvestment Act will temporarily change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on tax returns filed in 2010.

Q: What about losing my job?

A: The loss of a job can create new tax issues. Unemployment compensation and Severance pay are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable.

Q: Are job search expenses deductible?

A: You may be able to deduct certain expenses you incur while searching for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home can also be deductible.

Q: What if my employer goes out of business or into bankruptcy?

A: Your employer must provide you with a 2009 W-2 Form showing your wages and withholdings by February 1, 2010. You should keep current records or pay stubs until you receive your Form W-2. If your employer fails to provide you with a Form W-2, contact the IRS and we can help by providing you with a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.

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