Tax Tips for Laid-Off Workers

Losing a job is a heavy financial blow, but if you face unexpected unemployment, you have the right to various income tax benefits. The IRS allows deductions for health insurance, job search costs, taxes on severance pay, and job-related moving expenses. Whether you're laid off, your self-employment or freelancing expenses as you wait to get back to your old job can be deducted from the business income. For Americans abroad, working with a service like Universal Tax Professionals can help ensure that overseas tax obligations are handled correctly, even during unemployment. If you lost your job recently, your income may have dropped which means your status is likely to change as well. In this case, you might be inclined to use a Florida paycheck calculator to make sure you're spending within the right budget. In such situations, tax tips for laid-off workers will help you understand if you may qualify for deductions and credits that are only accessible to lower-income taxpayers. But, you may also have to pay income taxes that other taxpayers won't have to. With this layoff tax advice, you should be able to maximize your tax refund.

1. File your tax returnIf you have been unemployed for a while now, it's easy to forget filing tax return. In fact, you may find it unnecessary if they don't earn any income, but still filling your returns may be necessary. It will depend on your filing status, gross income, and age. 

Besides, any sick pay or vacation or severance benefit you received during your layoff is also added to your taxable income. If you had worked for a specific duration in a year and your taxes were withheld or got paid the estimated taxes while employed, you may enjoy a refund because of a significant drop in your income.

Also, do not delay in filling your returns as you may get a return. If you are laid off from your job, you will now be in a lower tax bracket. So, any withholding from your previous job may result to a higher refund at tax period.

2. Unemployment income is fully taxableIf you received your severance pay including those unused sick days and vacations, they are fully taxable the year you received them. Your taxes on severance pay will be included in the W-2 form sent to you by your former employer.

3. Make good use of government programs There are several government programs may reduce your daily expenses. Every year the state, federal, and local governments distribute around $1.8 trillion in benefits ranging from food money to health care plans. Some of these benefit programs are also tax free, so, your money saving benefits include;· Food assistance· Health insurance· Unclaimed funds· Low cost phone services· Low cost auto insurance· Low cost electric utilities and gas

4. Adjust your withholdings Once you find a job, it's essential to take into account your unemployment income when filling the W-4 withholding certificate for your employer. This is important when there are no federal taxes withheld from your unemployment income.

5. Take a tax break Losing your job can open doors to additional tax breaks. But, it depends on your income level.

 It includes;· Earned Income Tax Credit. The more children you sire, the higher the credit amount. If you're a taxpayer with over three qualifying children, you are eligible for a credit of up to $6,935 for the 2022 tax year· Child Tax Credit. In 2020, the tax credit for a qualifying child below 17 years tax credit was up to $2000. In 2021, the amount increased to $3,600 depending on the child's age and the 17 years old children were eligible. But, in 2022, the tax credit will revert to the original amount $2,000.· Savers Credit. The maximum credit that a low income taxpayer qualifies is $2,000 ($4000 for couples). This makes it a credit of$1000 ($2,000 if filling jointly). To be eligible in 2022, married couples should not have over 68,000 incomes and over $34,000 for single taxpayers. · Child and dependent care credit. This is a tax credit offered to you to cater for eligible childcare and other dependents while working or job seeking. The amount you pay another person to care for your child so that you can look for work or work is deductible. But, the eligible expense percentage varies depending on your income level.

6. Pay for unemployment compensation taxesUnemployment compensation usually paid via direct deposit or check, is a benefit paid to those who are being laid off from their jobs or the business closed. You must report any amount of unemployment compensation you receive (The American Rescue Plan Act has waived federal tax of $10,200 of the tax year 2020 benefits for households whose income is below $150,000).You should receive the Form 1099-G from your state as the year begins. The form provides your unemployment compensation benefits you received in the previous year so you may use/report it while filling your tax return.

7. Find out more about self-employment taxesIf you are unexpectedly laid off from your job, then you may also be self-employed. In case it happens, you must understand self-employment taxes. Here are some of new tax rules.

· Report all your expenses on Schedule C (For business profits or loss), or on Schedule F (profit and loss of farm income).· If you've picked some odd jobs, you have to attach Self-Employment Tax to your 1040. Then pay your Medicare and social security taxes (on yourself employment income).· Go through IRS Publication 334, small business tax guide, estimated tax payments, business expenses, and record keeping tips.

8. Consider Health Coverage Tax Credit (HCTC)In 2021, HCTC was available for a selected group of people. Those who lost their jobs because of trading with foreign countries and received Trade Adjustment Assistance may claim for the credits.

9. Take out federal taxes Since unemployment income is taxable, taking out your federal taxes out of the unemployment income is another alternative to avoid surprises while filing taxes. Taxpayers can decide to withhold approximately 10% from unemployment benefits if you fill out Form W-4V (Voluntary Withholding Request). But, if you don't withhold enough, you can opt for estimated tax payments.

Applying tax tips for laid off workers can assist you solve the sudden unemployment shock as you search for a new job. Your CPA will ensure you get the credits and deductions you deserve. They can also offer advice on cutting expenses, revising your budget, dealing with unemployment tax and any other financial issues