You’ve probably heard there’s nothing certain but death and taxes. And that holds true even in an uncertain economy. Even when you lose your job, you still have to pay taxes.
The hard truth is, unemployment compensation is taxable. So is severance pay and payment for accumulated sick leave. Payments for unused vacation time are taxable as well.
Not everything is taxable. If you’re eligible for food stamps, those aren’t taxed. You usually don’t pay taxes on gifts, unless they produce income (such as interest, dividends, or rent).
If you’ve recently been laid off, plan ahead so you don’t face a jaw-dropping bill when you file. You have two basic options: Arrange for federal withholding, or make estimated tax payments.
Sign up for withholding by filling out Form W-4V, available at irs.gov
, or call the Internal Revenue Service toll-free at 800-829-3676. You also can estimate your tax with Form 1040-ES, available at irs.gov
, and make quarterly payments.
Fortunately, some tax benefits come with unemployment.
• Deduct some job-hunting expenses;
• Deduct health-insurance premiums more than 7.5% of your adjusted gross income; and
• Deduct education expenses to make yourself more employable.
If you’re earning a lot less this year, you may qualify for these tax credits and deductions, which are phased out for people with higher incomes:
• Child Tax Credit
• Deduction for Dependent Care
• Earned Income Tax Credit
Just because taxes are one of the few things you can count on in uncertain times doesn’t mean you should pay more than you have to. Make full use of the benefits due to you, and look forward to the time you can leave them behind.
And, if job loss has left you having a hard time financially, talk to the professionals at Coosa Pines Federal Credit Union. We’re here to help get you back on your feet during these tough times. Stop by or call your local branch