There are some things John Q. Taxpayer can do to reduce the tax burden during a job search. Here are a few reminders before you fill out that Form 1040.
By now, you’ve probably received your W-2s, 1099s and various other tax documents you’ll need for the annual April bloodletting. For those of you who have been laid off, you may also get a surprise slap in the face by discovering that those meager unemployment checks that have kept you afloat for weeks or months are considered taxable income. Welcome to tax season.
But not all news about taxes is necessarily bad. There are some things John Q. Taxpayer can do to reduce the tax burden during a job search. Here are a few reminders before you fill out that Form 1040.
You may be getting a refund. If you lost your job during the tax year, you most likely have moved into a lower tax bracket, so the tax withholding amount at your former employer is now probably too high. File early in case you get a much-needed chunk of change.
Many job-search expenses are tax deductible. The costs of outplacement fees, resume preparation and mailing, new interview clothes, out-of-pocket heath-care costs, traveling to and from interviews, moving to a new residence or taking job-related education courses may be deducted, provided the amount claimed is more than 2 percent of your adjusted gross income on Schedule A. There are four big catches, of course:
- No experimenters. The only job-search expenses that are deductible are those incurred while looking for a job in the same occupation as the job you had before. Good news for ladder-climbers.
- No dawdlers. You can’t deduct job-search expenses if there was a “substantial break” between the end of your last job and the time you begin looking for a new one.
- No first-timers. You cannot deduct job-search expenses if you are looking for a job for the first time.
- No piling on. While it may be tempting to get creative with the number of “job-search related” deductions claimed, do so at your own peril. These kinds of deductions usually raise red flags at the IRS, so the more you claim, the more you may attract attention from auditors.
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Employers are getting tax breaks to hire “hard-to-place” job seekers. Thanks to the federal Work Opportunity Tax Credit (WOTC), Washington employers earned a record $82 million in tax credits in 2013 for hiring certain groups of workers, such as military veterans, the disabled, former prison inmates and food-stamp and welfare recipients.
The maximum tax credit for an employer can range from $2,400 to $9,600 per new hire. According to the Employment Security Department, more than 56,000 applications for the WOTC credit were submitted by 2,632 Washington businesses. Of those applications, more than 30,000 of the hires qualified for the tax credit.
You may get tax credits, too. If you are unemployed, your new status may make you eligible for the:
- Earned Income Tax Credit. A taxpayer with three or more qualifying children is eligible for a maximum credit of $6,044 in 2013.
- Child Tax Credit. Up to $1,000 for any qualifying children under the age of 17.
- Child and Dependent Care Credit. If you’re paying for child day care so you can look for work, those expenses may be deductible, depending on your level of income.
- Savers Credit. Up to $1,000 in credits per individual could be available for those who made retirement-plan contributions and made less than a certain income threshold.
This is just the tip of the tax iceberg. For more information about job-search expenses, see IRS Publication 529 or call 800-TAX-FORM (800-829-3676).