Unemployed Tax Deductions Provide Tax Relief

Posted by Amanda on March 30, 2010

Looking for unemployed tax deductions? You’re in luck, there are several tax deductions related to unemployment, job searching, or moving for a new job that will give you tax relief at a time when you probably need it most.

Unemployment reached 10% in the United States for 2009, sending over 16 million people home without their normal paychecks. Some politicians and statisticians argue that the number is actually higher than 10% because the way that the information is gathered on unemployed people means that some people who are technically unemployed are not counted at all, including people who have been unemployed so long that they have simply just stopped looking for a job, or people who are underemployed (i.e. working part-time, but want more hours).

Update: New for 2012, the IRS added additional Unemployed Tax Relief waiving the failure to pay penalties for six months for unemployed taxpayers.

Tax Exempt Unemployment Payments

Typically if you receive unemployment from the government, you have to pay income taxes on all of it. With the passing of the American Recovery and Reinvestment Act, the first $2,400 of any unemployment compensation you received in 2009 is not taxable.

Update: The $2400 exclusion expired in 2009, and was not included in the Obama Tax Cuts. Therefore, you cannot claim the exclusion on your 2010 or 2011 taxes.

In order to take this tax exemption, on the 1099-G form you receive from the government, subtract out $2400 from the amount in Box 1, and then report this new amount on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. You can file a 1040EZ online for free.

Note: You will not receive an unemployment W2 form, which is a common misconception.

Tax Deduction for Employment Search

You can deduct certain job search expenses so long as you are searching for a job in the same occupation, you itemize your taxes, and your miscellaneous itemized deduction write-offs (where you will be taking the job expense deductions) is greater than 2% of your adjusted gross income. If you are temporarily working in another field while looking for a job in the same occupation as before, then you can still take this tax deduction.

The following job search expenses are tax deductible: resume preparation, postage, copying fees, headhunter fees, meals while traveling (up to 50%), and mileage (for going to and from interviews, job counselors, etc.). These costs cannot be reimbursed by a potential employer.

Tax Deduction for Moving Expenses When Moving for a New Job

Did you move to take a new job? To qualify for the moving tax deduction, your new job must be at least 50 miles farther from your old home than your old job location was. Also, you must work at the new job for at least 39 weeks during the first 12 months after you move in the area of your new job.

If you qualify, you can deduct “reasonable” costs associated with your move, such as the cost of traveling from your old home to your new home, and the cost of moving your family members, including gas mileage, airfare, parking, tolls, etc. You can also deduct the cost of packing up your belongings and moving them, as well as connecting and disconnecting utilities, shipping your car and pets to your new home, the cost of storing your belongings within any period of 30 consecutive days after the day your things are moved from your former home and before they are delivered to your new home, and lodging while in-transit.

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