Lost Your Job in 2009? Here’s How to Maximize Your Tax Benefits

Lost Your Job in 2009? Here’s How to Maximize Your Tax Benefits

As of January 2010, nearly 15 million people in the United States were unemployed. Here's what to do if you lost your job in 2009:

You Still Have to File a Tax Return

You’re legally obliged to file if you made more than $9,350 in 2009 (or if you and your spouse made more than $18,700). Even if you made less than that, you should still take the time to fill out a tax return, since tax season is one of the few times losing a job can literally pay off. This comes in the form of a larger refund check than you would have gotten if you still had your old job.

Unemployment Insurance is Taxable Income, but Some May Be Tax-Free

First, some bad news: Government unemployment payments are taxable income. Now, some good news: For tax year 2009, the first $2,400 of unemployment is tax-free. Don’t forget that you must pay taxes on any severance, back vacation pay, or other “golden handshake” payments you received.

Early 401(k) Withdrawals May Incur Penalties, But Not If You Remove This Year's Contributions Before April 15th.

If you wind up spending some of the money in your IRA or 401(k) account, you will have to pay regular income taxes on that money (because you put it into the account tax-free, remember?). You may also be stuck with additional taxes and penalties for early withdrawal. However, you can take back contributions you made during 2009 without tax penalty...if you do it before April 15th. To do this, make sure that 1) you do it before filing your taxes, and don’t claim the contribution as a deduction; and 2) you report any interest your contribution earned during the year as income. Keep in mind that these rules only apply if you actually need the money for expenses. If you don’t, avoid tax consequences altogether and refrain from breaking into your retirement savings.

Deduct Your Child Care Expenses, Even if You're Job-Hunting Rather Than Working

Not only are you allowed to take a tax credit for child care while you work, but you are also allowed to have that tax credit for child care expenses while you look for work. Here’s a chart that can help you determine your child care tax credit.

Take Deductions for Other Job-Hunting Expenses

You can deduct many job-hunting expenses such as travel to interviews, including mileage at $0.55 per mile. You can also deduct for resume writing services, career coaches, fees you've paid to employment agencies, expenses for copying and mailing your resume, and even career development courses. New clothes bought for job interviews are not deductible, though—sorry! Remember to keep your receipts from these charges.

You May Qualify for the Earned Income Tax Credit

If getting laid off made 2009 a low-earning year for you, check out the Earned Income Tax Credit. Generally, if you're a single person with no children, you qualify for the EITC if you earned $13,440 or less in 2009. If you’re married and/or have kids, the earning limits are higher. The absolute maximum is $43,279 for a married couple with three or more children. The tax credit itself can range from a maximum of $457 if you’re single without kids to more than $5,000 if you’re married and have three or more children. You must be at least 25 to earn the EITC. Check out the other EITC rules.

The Stimulus Package Includes COBRA Health Insurance Subsidies

One of the worst things about losing your job is losing your health insurance. Employers are required to let you remain on their insurance plans through a program called COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985). All the same, COBRA payments can be prohibitively expensive for former employees. This year, the federal government has decided to help. As part of the stimulus package, you may be eligible for a 65% subsidy of your COBRA payments. This is an actual subsidy, as opposed to a tax credit or tax deduction. Learn more about the COBRA subsidy.


Minda is vice president of The American Society of Journalists and Authors, and co-author of The Geek Gap.


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