If you're unemployed, the IRS will cut you some slack this year.
There are several tax breaks available to people who are jobless or are looking for work.
"When you are unemployed, every dollar counts," said Mark Luscombe, principal tax analyst at business and tax software firm CCH. "Being aware of how the tax law works in your favor can be very important."
- Unemployment benefits are taxable. But this year, the American Recovery and Reinvestment Act allows the jobless to exclude up to $2,400 of unemployment pay from gross income. For a person in a low-income, 15% tax bracket, the amount saved would be $360.
- In tough times, many people are tempted to make early withdrawals from their retirement accounts. Unfortunately, they're hit with a 10% penalty. But if you're unemployed, you can avoid the penalty if the withdrawals are for deductible medical expenses.
"Congress created exceptions where you can waive the penalty," Luscombe said. "If you meet the definition of unemployed and you make a withdrawal from your IRA or 401(k) to pay for any deductible medical expense, you get a break whether or not you are able to claim the expense on your tax return."
- If you're older than 55 and withdraw money from your 401(k) after you quit or lose your job, there would also be no penalty.
- Job hunting expenses are deductible if you itemize your return. Expenses can include the cost of résumé printing, long-distance phone calls, faxes, postage and travel bills.
You don't have to be out of work to be eligible. But you do have be searching for a new job in a similar career field.
Job-hunting expenses get counted as part of your miscellaneous itemized deductions, which must exceed 2% of your adjusted gross income to be deductible.
- If you move to take a new job, you may be able to deduct your moving expenses. To qualify, the new job must be at least 50 miles farther from your old home.
