If you were searching for a job in 2019, here's everything you need to know before filing your taxes.
Welcome to another tax season, folks. You might be wondering how exactly taxes relate to your job search. Prior to the 2017 Tax Cuts and Jobs Act, you could deduct a number of job search-related expenses, including resume-writing services, travel expenses, and even career coaching.
Although these deductions are no longer on the table, there are still several tax guidelines you'll want to keep in mind if you were unemployed and searching for a job at any time in 2019. And, if you have any specific questions regarding your circumstances, consult the IRS website or an accountant.
Withdrawing from a retirement account
If, while you were unemployed, you had to pull money out of a retirement account to replace your income, you could face a tax penalty for the early withdrawals (if you're not yet at least 59 ½ years old). For instance, with 401(k) accounts or traditional IRAs, you typically have to pay a 10 percent tax penalty.
If you have a Roth IRA, you'll also likely face a 10 percent tax penalty. The only difference is that this penalty is applied only to your investment earnings. That means you could take out any amount of money from your initial contributions tax free.
If you're a working parent, you might be familiar with the Child and Dependent Care Credit. It allows working parents to claim a tax credit if they're paying for child care (under the age of 12) or dependent care. You can also claim this credit if you were unemployed but had to rely on child care or dependent care to look for a job.
Now, note that this is a tax credit — not a deduction. A tax credit gets directly subtracted from your taxes owed, meaning it typically has a much greater (read: beneficial) impact on your taxes. The size of your credit will largely depend on how much you spend on the care and how much you earn.
Side jobs and the gig economy
If, while you were unemployed, you took on a side job to supplement your income, you'll have to report this on your taxes. Keep in mind that if you spent a lengthy amount of time doing a particular side gig, the IRS might consider you self-employed; be sure you understand the difference because it'll mean different things for your taxes.
If you earned more than $600 from any single employer, you should receive a Form 1099-MISC, which will include how much you've earned. Even if you don't get this, you're still required to report your earnings.
Additionally, you'll want to hold on to receipts for any business-related expenses. You might be able to deduct these from your tax bill and lower the amount you owe. For example, if you were an Uber driver, you could write off business-related mileage.
Government unemployment payments
If you received unemployment compensation while looking for a job last year, you might have to report this on your tax return, depending on how much you received and your filing status. If you do need to report it, it should be filed under income.
When you receive unemployment benefits, you'll get an IRS Form 1099-G. There, you'll choose if you want to have the income taxes withheld, which can help prevent you from getting hit with a massive tax bill at the end of the year.
Going back to college
If at any point in your job-search process you decide you'd rather take a break from work and take some college classes, you'll want to be aware of two tax credits that could be available to you:
If you're enrolled in classes half time for at least one academic period (semester, trimester, or quarter), you may be eligible for the American Opportunity Tax Credit, which maxes out at $2,500 annually.
You may also want to look into the Lifetime Learning Credit, which can go toward undergraduate, graduate, or professional degree courses.
If you're curious to see if you're eligible for any of these credits, the IRS has a free interactive tool you can use.
Items you cannot deduct
Unless you plan to go back and file an amended tax return from any expenses you incurred in 2017 or earlier, you can no longer claim one of the outdated job-search deductions. These included:
Phone calls related to your job search
Travel expenses (the cost of transportation, meals, and accommodations when taking a trip primarily focused on finding a job)
Creating a portfolio
Additionally, you could never have deducted personal care expenses, such as a new interview suit, haircut, manicure, or time off to look for a job, even if you incurred the expenses for your job search.
If you have additional tax questions in regard to your job search, the IRS website has a ton of free resources for you to look through and gain a better understanding.
Still unemployed and searching for a job? It might be your resume. Check today with a free resume critique!
This article was updated in March 2020. It was originally written by Ronda Suder.