The jobless rate is dipping, but millions of people are still out of work. And that could have implications when they file their income tax returns.
Collecting unemployment insurance benefits? All that you received in 2011 is taxed as income. Unless you requested that federal taxes be withheld, you could be in for a big surprise when you calculate taxes owed.
“People tend to believe unemployment benefits are still not taxable,’’ said Bob Meighan, a vice president at TurboTax. That was the case in 2009, for the first $2,400 in unemployment benefits. But that provision was not renewed by Congress.
If it is any consolation, you may find yourself in a lower tax bracket because of reduced income, even counting the unemployment benefits. And you might also be eligible for tax breaks that you didn’t qualify for before.
“If you have major household changes, say you lost your job in 2011, we encourage people to take a close look at things like the earned income credit,’’ Internal Revenue Service spokesman Terry Lemons said.
For those who spent part or all of 2011 searching for work, there are tax breaks.
“All of those job search expenses are deductible - the stationery, the long-distance phone calls, the hotels, anything you can relate to the job search,’’ said Jeff Schnepper, author of “How to Pay Zero Taxes.’’
To qualify for this deduction, you have to be looking for a job in the same field or profession as your previous one.
You also have to itemize. And the cost of preparing your resume, working with job search services, mileage, and other job search expenses has to exceed 2 percent of your adjusted gross income if you are to benefit, according to Greg Rosica, tax partner with Ernst & Young.
If you land a job across town or across the country, you might be eligible to take a deduction for moving expenses. You don’t have to itemize to take advantage of the deduction. To qualify, there’s a distance test that has to be met: Your new job has to be at least 50 miles farther from your old house than your former job was.
Also, you can deduct moving expenses even if this is your first job, provided your workplace is at least 50 miles from your former home. Same if you’re returning to work after being unemployed, the IRS says.
To claim the moving expense deduction, file Form 3903. IRS publication 521 provides more information.
If you went back to school to train for a new job, you may qualify for the American Opportunity Credit, which is partially refundable, or another education tax break.Carole Feldman writes for the Associated Press.