Tax Tips for Job Seekers

Get 6 tax tips for unemployed and employed job seekers.

Laura Adams, MBA
4-minute read
Episode #160

With the unemployment rate currently at 10% it’s likely that you, or a friend or family member, may be looking for work. This week’s post is about tax breaks related to being unemployed or hunting for a new job.

Tax Tips for Job Seekers

Now, let’s get back to the topic and see if you can take advantage of any of the following six tax tips:

Tip #1: A portion of unemployment compensation is tax-free.

Normally, unemployment benefits are taxable income. But there’s a brand new benefit that makes the first $2,400 of unemployment that you received in 2009 tax-free. For example, if you received $3,000 in unemployment, you’ll only be taxed on $600 of it. The benefit applies to each taxpayer, so if you’re married and file a joint return, you can each exclude the first $2,400 of your unemployment from tax. This break is only for 2009—benefits you receive in 2010 are fully taxable again (unless the law changes). However, you can choose to have income tax withheld from unemployment payments. That way you won’t be surprised by a year-end tax liability.

The rule is that you can deduct certain expenses when you’re looking for a job in a similar trade or business, even if you don’t find one.

Tip #2: Some of your job search expenses may be tax-deductible.

Today’s job market is one of the most competitive in history. You’ll probably need to spend some money to create a top-notch resume or even get some career counseling. The money you spend on your job search can add up. But the good news is that many of your expenses may qualify for a tax deduction, which can lower the amount of tax you have to pay. The rule is that you can deduct certain expenses when you’re looking for a job in a similar trade or business, even if you don’t find one. But note that in order to qualify for this deduction, you can’t be searching for your very first job. Nor can you deduct any expense that you’re reimbursed for by an employer, or anyone else. Here are some common tax-deductible expenses related to doing a job search:

  • Employment agency or “headhunting” fees

  • Expenses for creating and mailing your resume

  • Professional services such as resume development and job counseling

  • Local and long-distance telephone calls to prospective employers

  • Mileage driven to and from job interviews (the 2009 rate for business use of a vehicle was 55 cents per mile)

  • Travel expenses such as airfare, car rental, and hotel for a trip that’s primarily to look for a new job or to interview for one

  • Passport fees for an interview outside of the country

  • Classified ad expenses

  • Membership fees for job search websites

  • Travel expenses to find a new residence before relocating

  • Moving expenses when you relocate for a new job

You’ll find more information about which expenses are tax-deductible in IRS Publication 529.

Tip #3: Get a tax credit for education.

If you haven’t taken a class or training program in your field in the past few years, consider how that could help you land a job. You might even find an online program that would make it possible to brush up on your skills from the comfort of your own home. The American Opportunity Tax Credit allows you to receive up to $2,500 for the cost of qualified tuition and related expenses for higher education. Expenses for books, supplies, coursework materials, or a computer, for example, in 2009 and 2010 are eligible. The credit is 40% refundable, which means that even if you don’t owe any tax, you can still get a portion of your credit as a tax refund. You claim The American Opportunity Tax Credit by submitting IRS Form 8863 with your tax return.

Tip #4: Get a tax deduction for education.

The Tuition and Fees Tax Deduction can reduce your taxable income by as much as $4,000. It’s for the cost of enrollment and required course-related books, supplies, and equipment. You can take it even if you don’t itemize deductions on your tax return. Note that there are income limits for both the education tax credit and deduction and that you can’t take both of them in the same year. You claim the Tuition and Fees Tax Deduction by submitting IRS Form 8917. See the form for more information about who’s eligible for it.

Tip #5: Get a 65% reduction on the cost of COBRA health insurance.

COBRA stands for Consolidated Omnibus Budget Reconciliation Act. It provides continuing group health insurance for up to 18 months after you become unemployed if you elect to pay the monthly premiums. The American Recovery and Reinvestment Act of 2009 (ARRA) provides a premium subsidy to qualified individuals who become unemployed between September 1st of 2008 and February 28th of 2010. If you had health insurance through work and elect to take COBRA insurance, you’re only responsible for 35% of the premium for a period of 15 months. For a COBRA premium that’s $1,000, your portion of the payment would be $350. For more information see the Department of Labor’s website at dol.gov.

Tip #6: See if you’re eligible for the Earned Income Tax Credit (EITC).

If you’ve been out of work for a while, it’s likely that your income will be substantially reduced. That means you may qualify for tax benefits that you didn’t even know about. The Earned Income Tax Credit or EITC helps low and moderate-income taxpayers with a credit that’s determined by the amount of your earned income, filing status, and family size (although you don’t have to be married or have children to qualify). The IRS says that one in four eligible taxpayers fails to claim this credit. Use the EITC Assistant at irs.gov/eitc to see if you’re eligible.

Finding your next great opportunity is a challenge for anyone in today’s job market. If you’re feeling frustrated, try a new approach like doing more online and face-to-face networking. Reach out to friends, professional organizations, alumni organizations, headhunters, placement agencies, and Internet job boards. Remember that a temporary or part-time job may lead to a full-time, permanent one. If you’re working, I hope you’ll share this information with any of your friends or family who may be unemployed. And if you’re still on the job hunt, keep your chin up and stay positive. 

Send your e-mail comments or questions to me at money@quickanddirtytips.com and be sure to become a fan on the Money Girl Facebook page—I’ll see you there.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.