IRS Releases Helpful Publication Regarding Tax Issues Associated With Job Loss and Seeking New Employment

Posted on November 6, 2009


In light of this year’s economic crises and rising unemployment rates, the IRS has released Publication 4128 to assist the recently unemployed understand the many tax issues associated with being unemployed and seeking work. The publication covers myriad topics, including severance pay, unemployment benefits, accumulated vacation or sick time, COBRA subsidies, qualified plan withdrawals, job hunting expenses, and moving costs. The following are just a few examples of what a recently unemployed taxpayer might learn from Publication 4128:

  • Severance pay, unemployment compensation and payments for accumulated vacation or sick leave are all taxable. However, in 2009, each taxpayer may exclude from gross income up to $2,400 of unemployment compensation. Make sure that the appropriate amount of taxes is withheld from severance payments, unemployment compensation, or payments for sick leave and vacation. If not, you must make estimated payments.
  • Withdrawals from qualified retirement plans (e.g., 401(k) plan) or Individual Retirement Accounts (“IRA”) are generally taxable unless transferred to another qualified retirement plan or IRA within 60 days. Furthermore, such distributions not made to a qualified plan or IRA may be subject to an additional 10% tax if you are under age 59 ½.
  • Workers who have lost their jobs may qualify for a 65% subsidy for COBRA continuation premiums for themselves and their families for up to 9 months. Eligible works will have to pay 35% of the premium to their former employers.
  • Some expenses related to a job search are tax-deductible even if you do not obtain a new job during the tax year. Examples include employment and outplacement agency fees; amounts paid for typing, printing, and mailing copies of your resume to prospective employers in your present occupation; and ordinary and necessary travel expenses associated with an interview for a job in your present occupation.
  • Certain moving expenses related to a move for a new job might also be tax-deductible. Generally, the move has to be closely related in time to the start of the new job and you must have moved at least 50 miles.

At only 7 pages, Publication 4128 is a quick and easy read (for an IRS publication). The advice is a bit general with respect to some of the topics covered. However, this does not present a problem. Every topic covered is full of references to other IRS publications containing more detailed information.

Not every displaced worker can or is willing to immediately resume their role as an employee of a company. Some individuals seek self-employment because either they cannot find a job or they are no longer willing to work for someone else. Publication 4128 also provides some helpful tax tips for those persons seeking to start their own business.

If a friend or co-worker has recently loss their job, I recommend that you refer them to Publication 4128. For an online copy of this IRS publication, “Tax Impact of Job Loss,” click here. For more information on the IRS or other federal tax related topics, visit the IRS website.

Russell M. Cunningham, IV
Cunningham Firm, LLC