Posted On September 12, 2014

The IRS may be there to collect taxes if you lose your job

A Nevada citizen who loses his or her job can actually need some beefed-up tax counseling after that dreaded event occurs. It may at first blush seem unlikely, but losing your job can ultimately result in several taxable events. First, severance pay and benefits received are taxable, according to the tax code and the IRS.

Unemployment benefits collected after losing a job are the lifeline that you prepared for through years of state unemployment withholding taxes. Nonetheless, unemployment benefits are generally also taxable income. You may want to set it up that taxes are withheld from the unemployment checks. That will assure no problems ahead, and many people will simply increase their refund check by that procedure.

There is an annual gift exclusion of $14,000. If you receive funds from friends or family, this may be a gift and not income. If the giver goes over the exclusion amount there may be a gift tax payable. The simple answer to that is to have family members limit their gifts to within the exclusion window.

Another issue that arises is the use of restricted retirement funds to survive during a period of unemployment. Depending on your age and health situation, you may have to pay taxes on a distribution from the retirement plan and you may also be penalized by the IRS. However, a total disability can exempt you from the early withdrawal penalty. To ease the later pain of paying taxes and a penalty, moreover, it may be best to have withholding taken directly out of the withdrawals.

For taxpayers in Nevada and elsewhere, there are numerous other considerations that can help to ease the discomfort while finding a new job. For example, you can deduct costs of a job search as long as you’re looking in the same job category. Having to relocate to a job in a new area can mean deductible moving expenses. IRS Publication 521 shows you the deductions that can be taken and how to claim them.

Source: Fox News Network, “The tax consequences of losing your job“, Bonnie Lee, Sept. 4, 2014