The Job Hunt: Taxman still wants his cut if you're unemployed
It's unfortunate, but even the unemployed have to pay taxes.
With 2.6 million jobs lost last year, a lot more unemployed people have tax problems to deal with when filing their taxes this year and face questions they probably haven't had to deal with before, as CNNMoney.com reports.
You'd think that not having a job and trying to get by on unemployment insurance would keep your earnings low enough to not have to pay taxes, but you may have to, depending on your income, no matter how limited it was in 2008.
Anyone who got a W-2 form from their employer and made at least $8,950 if single and under 65 years old, or made at least $400 if self-employed, must file a tax return, as must anyone expecting a tax refund.
Income includes a severance package, although some employers take out federal and state taxes before cutting the check. If it's a large amount, that could push you into a higher tax bracket for awhile, meaning more taxes are deducted, although some of that could be refunded when you do your taxes.
Other income includes dividends and interest from investments, and unemployment compensation. Some states, such as California, don't tax unemployment benefits, but the federal government does. When applying for unemployment, you can choose to withhold income taxes at a 10% rate.
Taking money out of a 401(k) retirement plan to supplement your income may also lead to a tax bill, in addition to a 10% penalty on early withdrawals if below age 59-1/2.
Freelance and consulting work is also taxable and is included on a Schedule C with your income tax return. An employer will give you a 1099 form if you earned more than $600 from them. If less than that, you won't get the form but must still report anything you made as taxable income.
Job search costs, such as printing resumes, are deductible, and it's best to check with your tax preparer for details of other deductions.
With all of the tax changes the newly unemployed are going through, another thing to consider is hiring a tax professional to prepare their tax returns, or whether to go with a computer program to do them.
Aaron Crowe is an unemployed journalist in the San Francisco Bay Area. Read about his job search at www.talesofanunemployeddad.blogspot.com