Unemployment is an uncertain and stressful thing in any one’s life. However, it can be all the more complicated
by the many questions surrounding your tax obligations after losing your job. This article will discuss a few of the common questions surrounding your tax obligations following unemployment.
If you were recently laid off by your place of employment, you may be curious as to whether or not the severance package they gave you is taxable or not. Unfortunately, the answer to that question is yes, it most certainly is. The money you received as a result of your termination is considered to be taxable income and will be included on your W-2 at the end of the year. Other taxable income includes any payments you receive for unemployment insurance or other benefits you may receive while unemployed. This includes an unemployment payment made by the government if you have filed for unemployment with your state.
Gifts from friends or family members during this difficult time are generally not taxable if they are kept under a specific amount of money. Do some research on your state laws regarding the giving of gifts and taxes to make sure that each family member or friend that helps you out stays under the taxable amount.
As far as dipping into your retirement savings goes, if the money is simply coming from a savings or money market account, there is no penalty for withdrawals. However, if you are planning on making a withdrawal from a different type of retirement plan or from an IRA account, you will have to pay taxes and a penalty if you are under the age of retirement. These taxes, like the ones you will have to pay for your severance check, will be due at the time that you do your taxes for that year. So, if you took out the money in November of 2011, you will have to pay the taxes on that money in April of 2012.
Following unemployment, you are probably diligently seeking another job as soon as possible. It is important to note that the expenses incurred while looking for a new job can be written off as a tax deductable expense. A financial planner or tax expert can help you with this process if you are unfamiliar on how to do it.
Finally, now that you have found out just how many things continue to be taxed following unemployment, you may be curious as to whether or not you can actually afford to pay what you owe to the IRS. What is
you can’t? A simple phone call to the IRS with an explanation of your situation should be able to remedy the problem. The IRS wants its money and has payment plans that may be able to help you meet your tax obligations.
Author’s Bio: Val Anne is an in-house writer from Franklin Debt Relief, a company specializing in programs for people with high credit card debt.
Unemployment and Taxes by Steve