Filing Taxes When You're Unemployed

Resume and job application

As of January of 2016, approximately 7.8 million Americans were unemployed. If you are among those who have lost a job, tax season may present an opportunity to alleviate some of your financial distress.

Help from Uncle Sam

Earned Income Tax Credit

If your 2015 earnings were reduced (from previous years) due to a job layoff, you may be eligible for the Earned Income Tax Credit (EITC), a credit for low-to-moderate income earners. To qualify for the EITC, you must have earned income from employment, self-employment, or another source and meet certain rules. Unemployment benefits are not considered income for purposes of qualifying for the EITC. Read more about the basic qualification rules for EITC.

Job Search Benefits

Expenses related to a job search may be tax deductible — whether or not your search is successful — as long as you’re seeking new employment in the same line of work. Examples of deductible expenses include:

  • Typing, printing and mailing resumes
  • Long-distance phone calls, postage and fax transmissions
  • Travel and transportation expenses connected with the job search
  • Employment agency fees

Job-hunting expenses are grouped as a “miscellaneous itemized deduction.” You can claim the amount of expenses that is more than 2 percent of your adjusted gross income. For more information, see IRS Publication 529.

Moving expenses also may be deducted if you are successful in your job search and it requires a move of at least 50 miles from your current home to your new job location. For more information, see IRS Publication 521.

Unemployment Compensation

With unemployment compensation, it’s important to remember that just because you are receiving government benefits doesn’t mean you are exempt from paying taxes. When you filled out your Form W-4V, you may have elected that a percentage of your unemployment compensation be withheld for federal taxes. If you did not establish withholding in the beginning, be aware that you are required to report the income and pay the tax. Read more on unemployment compensation and withholding.

Also, be sure to include any additional compensation when you file. This includes severance pay or cash payments for accumulated sick leave or vacation, which must be included in your gross income for tax purposes. Any such income should be reported on the Form W-2 you receive from your former employer for the year.

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]