Tax considerations for switching jobs or unemployment
If you are about to switch jobs or experience some sort of unemployment, there are certain tax implications you may need to consider.
Accrued money
When switching jobs, you may have a sizeable amount of money accrued coming to you from vacation or sick pay. Any form of severance pay you receive is taxable in the year you receive it, in addition to the vacation or sick pay.
Withholding
When you change jobs, you will have to adjust your withholding on Form W-4. Using the worksheet provided will help you determine the right number of withholdings to avoid over or underpaying.
401(k)
If you had a 401 (k) with your previous company, you will have the opportunity to either cash in your 401(k); switch it to the new employee; or pay a penalty if you choose to take the money. If you have more than $5,000 in the account and are fine with the way it is being handled by your former employer, you may elect to leave your savings in the plan where it will continue to grow.
Job search expenses
You may be able to deduct some of the money you expend while looking for another job, but those costs must meet the requirements outlined by the IRS. These expenses can include employment agency fees, the costs associated with sending out your resume, phone and fax expenses, and in some cases, travel.
Relocation
You may be able to deduct some moving expenses that are not covered by your new employer. If your old job is at least 50 miles from the old one, and you will have full-time employment for a 12-month period, you can deduct items like the cost of packing and shipping your personal possessions, insurance and 30 days of storage. Traveling to the new home, and any expenses dealing with the car, which includes gas and oil, parking and tolls.
It is important to note that when receiving unemployment benefits, if taxes are not withheld, you may be facing a large tax bill the following year.
To find out more about tax considerations for switching jobs, or the tax issues surrounding unemployment, contact us by calling 617 651 0531 or by emailing [email protected], or by filling out this contact form:
Get in Touch with Dukhon Tax
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