Life is hard enough when you don’t have a job — and then you have to deal with taxes, too. But all is not bad news if you know how to navigate the system. It might require a little extra effort, but you can catch some breaks around tax time if you know where to look.
TAXES ON UNEMPLOYMENT
Unfortunately, your unemployment compensation is taxable. You don’t have to pay Medicare or Social Security as you would with regular income, but you do have to claim your unemployment payments as income on your tax return. You can choose to have taxes withheld from your payments or set aside a portion of each payment and save up to pay taxes later.
If you plan to stay in the same field and you’re actively looking for work, you can deduct reasonable expenses involved in your job search, including:
- Job placement services
- Job fair admissions
- Parking, tolls and mileage to and from interviews
- Resume or career consultations
Keep good records of everything, including receipts for parking, printing services or any other relevant expenses — including taking your mentor out for coffee to discuss your options.
GET EXTRA CREDIT
A drop in your income might make you eligible for the Earned Income Tax Credit (EITC), which not only offers a reduction in taxes, but also is a refund. If you don’t owe any tax, you could get money back from the IRS. Married couples receive more, and the amounts go up progressively when you have kids.
Consider getting free tax help if you’re planning to claim the EITC. A mistake on your return could be costly. If errors are found, you could have to pay back any money you received plus interest and penalties. If the IRS thinks you did something fraudulent, they can ban you from claiming the EITC for up to 10 years.