During the economic downturn for the past couple years, millions of Americans have lost their job.
However, as part of the American Reinvestment Recovery Act, the government made sure that even the unemployed are also taken care of by offering numerous benefits such as extending the unemployment benefits, exclusion of up to $2,400 of income, and subsidizing the COBRA health insurance premiums.
Although some of those benefits are no longer available for tax year 2010, there are still quite a few of those credits and deductions that the individuals can still avail.
When you lose your job, you need to be aware of a few tax issues with regards to your income, retirement plans, job search, etc.
If you received severance pay, payment for accrued vacation or sick days, and unemployment benefits, all of them are taxable and must be reported in your tax return. In 2009, unemployed taxpayers who received unemployment benefits were able to exclude up to $2,400 from their taxable income. However, the exclusion tax benefit was not extended in 2010. See 2009 Tax Benefits Extended in 2010 article.
Distribution on Your Retirement Plan
Most companies offer various retirement plans such as 401k, 457, 403 (b), etc. There are some companies that allow you to keep your retirement plans with them. However, most companies don’t and would distribute the funds to you. You have 60 days to roll it over to another plan such as a Individual Retirement Account (IRA) or your new employer’s plan. If you don’t, the sum will be added in your income and will be taxable to you. In addition, you would have to pay a 10% penalty if you are age 59 1/2 or younger at the time of distribution. Lastly, when you still have an outstanding balance on the money you borrowed against your retirement plan, the remaining loan balance will be automatically treated as a distribution and will be taxable to you.
Job-Hunting Expenses You Can Deduct
You can deduct certain expenses for looking for a new job Â in your present occupation. Examples of these are cost of writing a resume, stamps for mailing copies of resume, fees paid to outplacement agency, mileage expenses to and from your house and the interview site. You can also deduct certain travel expenses (must be ordinary and necessary) such as airfare, rental car and lodging when you travel outside of your main area for a job interview. However, you may only deduct these items if you are itemizing your return. In addition, these expenses are reported on the miscellaneous expenses section that are subject to the 2% limitations on your AGI.
Health Insurance and Medical Bills
Chances are that you may be paying your own health insurance premium and other medical bills if you do not have any. These expenses can be deducted on your itemized schedule under the medical expenses section. Â However, just like the miscellaneous expenses, this is also subject to AGI limitation of 7.5% .
Deduction or Credits for College Courses
Perhaps you want to pursue a college degree Â or you just want to attend classes to improve your skills to make yourself more marketable,Â you may be able to take the American opportunity credit, lifetime learning credit, or tuition and fees deduction if you qualify. Â Depending on your situation, some of the educational expenses may be included as well on your itemized deduction.