Tax Impact of Job Loss
 

Facts

The Internal Revenue Service recognizes that the loss of a job may create new tax issues. Some of the issues a job loss creates impact you at the time you lose your job and the impact of other issues occurs when you file your tax return.

TAX FACTS YOU NEED TO KNOW NOW!

Withdrawals from a Pension Plan
In general, withdrawals from your pension plan are taxable unless they are transferred to a qualified plan (such as an IRA). If you are under age 59 1/2,
an additional tax may apply to the taxable portion of your pension. If you can roll it over into another qualified retirement plan or Individual Retirement Account (IRA) within 60 days, you will not suffer any tax consequence. See IRS Publication 575, Pension and Annuity Income, for more information.

Deduction of Job Search Expenses
Keep receipts for expenses you incur when searching for a new job. Certain job hunting expenses may be deductible. Examples of deductible expenses include employment and outplacement agency fees, resume preparation, and travel expenses for job search and interviews. See IRS Publication 17, Your Federal Income Tax, for more information.


Moving Costs
Keep your receipts if you have to move to begin a new job. Moving costs incurred because of a change in job location may be deductible. You must meet certain criteria relating to distance moved and timing of the move. See IRS Publication 521, Moving Expenses, for more information.

TAX FACTS YOU NEED TO KNOW FOR TAX TIME!

Severance Pay and Unemployment Compensation
The IRS provides the following information to assist displaced workers. Severance pay and unemployment compensation* are taxable. Payments for any accumulated vacation or sick time are also taxable. You should ensure that enough taxes are withheld from these payments or make estimated payments. See IRS Publication 17, Your Federal Income Tax, for more information

* The ARRA legislation temporarily suspends federal income tax on the first $2,400 of unemployment benefits received in tax year 2009.

Education Credits
You may claim a tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under new rules, the credit can be claimed for four post-secondary education years based on 100%of the first $2,000 of tuition and related expenses (including books) and 25% of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. See IRS Publication 970, Tax Benefits for Higher Education, for more information.

Sale of Home
You can exclude up to $250,000 ($500,000 if married and filing jointly) of the gain on the sale of your main home if all of the following are true:

• You meet the ownership test.
• You meet the use test.
During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. See IRS Publication 523, Selling Your Home, for more information,

Health Insurance
Workers who have lost their jobs may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months. To qualify, a worker must have been involuntarily separated between Sept. 1, 2008, and Dec. 31, 2009. This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. See IRS website; keyword COBRA, for more information.


Mortgage Forgiveness
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $1 million of forgiven debt is eligible for this exclusion ($2 million if married filing jointly). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. See IRS website, keyword Mortgage Debt Forgiveness, and Form 982 instructions for more information.

Earned Income Tax Credit
You may qualify for the Earned Income Tax Credit, (EITC), when you work, but do not earn a lot of money. There is a temporary increase of the EITC for eligible families with three or more qualifying children for TY 2009 and 2010 returns. The maximum EITC for families is $5,657. You may be eligible for the credit if you earn less than $40,463 for one child, $45,295 for two children and $48,279 for three or more children. For married taxpayers filing a joint return with no children, the credit begins to phase out at $12,470 and completely phases out at $18,440.
See IRS Publication 596, Earned Income Credit, for more information.

Copies of all publications are available at www.irs.gov. You may also request copies by calling 1-800-829-3676.