| The U.S. is mired in the worst recession since | | | | separation from service because of early |
| World War II with nearly 15 million people | | | | retirement under the plan after attaining age 55. |
| unemployed today. There are numerous tax | | | | This exception to early distribution treatment |
| provisions that are available to help the | | | | does not apply to a traditional IRA. |
| unemployed and also help mitigate the costs of | | | | 3. Distributions used to pay medical expenses to |
| finding new employment. | | | | the extent that the expenses are deductible |
| Job-hunting expenses.: | | | | (exceed 7.5%-of-AGI deduction floor, but |
| Such expenses are deductible to the extent they | | | | determined regardless of whether the taxpayer |
| exceed 2% of adjusted gross income. Examples | | | | itemizes deductions). |
| include: | | | | IRA distributions that are used to pay qualified |
| 1. Employment agency fees. | | | | higher education expenses of the taxpayer, the |
| 2. Classified ads. | | | | spouse, or any child or grandchild of the taxpayer |
| 3. Job counseling and referral services. | | | | or the taxpayer's spouse. |
| 4. Costs of resumes (printing, postage). | | | | Your retirement plan may allow employees to |
| 5. Travel for interviews. | | | | receive a hardship distribution because of an |
| 6. Telephone/Internet costs etc. | | | | immediate and heavy financial need. Hardship |
| In order to deduct job-hunting expenses, the | | | | distributions are limited to the employee's elective |
| taxpayer must be seeking employment in a trade | | | | deferrals and generally do not include any income |
| or business in which he or she is or was | | | | earned on the deferred amounts. What is an |
| employed. The deduction is allowed even if the | | | | immediate and heavy financial need is determined |
| attempt to obtain a new job is unsuccessful. | | | | based on all relevant facts and circumstances. |
| Job-hunting expenses are not deductible, however, | | | | Mortgage Relief Act of 2007: |
| for first-time job seekers (e.g., recent graduates) | | | | Taxpayers who have their mortgage restructured |
| or for taxpayers seeking employment in a new | | | | may benefit from provisions of the Mortgage |
| trade or business. Job-hunting expenses are | | | | Relief Act of 2007. This Act applies to the |
| deductible only as a miscellaneous itemized | | | | discharge of debt after 2006 and before 2010 |
| deduction on Schedule A of Form 1040, subject | | | | (before 2013, as extended by the Emergency |
| to the 2%-of-AGI deduction floor. Individuals | | | | Economic Stabilization Act of 2008). Up to $2 |
| generally must complete Form 2106, Employee | | | | million in debt forgiven on qualified principal |
| Business Expenses, if they were reimbursed by | | | | residence debt may be excluded from gross |
| an employer or a third party or if they claim any | | | | income. Qualified principal residence debt refers to |
| meal, entertainment, travel, or transportation | | | | acquisition debt, which is the debt incurred as the |
| expenses. | | | | result of the purchase, construction, or substantial |
| Moving expenses deduction: | | | | improvement of a personal residence, and which |
| If an unemployed taxpayer is able to obtain | | | | is secured by the residence. |
| employment in another geographical area, he or | | | | These rules apply to the taxpayer's primary |
| she will be allowed a deduction for qualified moving | | | | home, not to second homes, such as vacation |
| expenses. Moving expenses are a deduction from | | | | homes. If the taxpayer takes advantage of the |
| adjusted gross income (no 2% threshold as in job | | | | new provision for excluding the debt forgiveness, |
| hunting costs). To qualify for the moving expense | | | | a basis reduction is required. |
| deduction you must satisfy three tests: | | | | Unemployment benefits: |
| 1. Taxpayer must change job site even if with | | | | Typically, unemployment benefits are taxable as |
| the same employer.. | | | | gross income at the federal level and, in many |
| 2. Taxpayer move to the new job location must | | | | states, are subject to state income tax as well. |
| be at least 50 miles more than the distance from | | | | One of the recent changes recently enacted is an |
| the former residence to the former job location. | | | | exclusion of unemployment from gross income of |
| 3. Taxpayer must remain at the new job location | | | | up to $2,400 per individual. The exclusion applies |
| for at least 39 weeks at the new job location | | | | to unemployment compensation received in any |
| during the 12 months following the move. | | | | tax year starting in 2009. The exclusion applies |
| Taxpayers who are self-employed must work at | | | | only to unemployment compensation paid as part |
| least 78 weeks at the new location during the 24 | | | | of a governmental program, not amounts paid by |
| months after the move. | | | | private supplemental unemployment compensation |
| Qualified moving expenses include the following: | | | | plans (for example, unemployment benefits paid |
| 1. Moving household goods and personal effects. | | | | by a company either under its own initiative or |
| 2. Traveling from the former residence to the | | | | due to a union agreement). |
| new residence. Travel includes lodging, but not | | | | Increased earned income credit for 2009: |
| meals, for the taxpayer and his family. | | | | Workers who experience a layoff in 2009 are |
| Education Credits: | | | | likely to have reduced earned income during the |
| 1. American Opportunity tax credit has a | | | | year. Certain low-income workers are eligible for a |
| maximum value of $2,500 per year (100% of the | | | | refundable credit termed the earned income credit |
| first $2,000 of tuition expenses plus 25% of the | | | | (EIC). The EIC is calculated as a percentage of |
| next $2,000 of tuition expenses) for the first four | | | | the taxpayer's earned income up to a maximum |
| years of postsecondary education. | | | | earned income amount. The percentage credit |
| 2. Lifetime Learning tax credit is $2,000 per year | | | | available to taxpayers is phased out as adjusted |
| (20% of up to $10,000 of qualifying expenses | | | | gross income exceeds certain thresholds or if the |
| incurred in a year in which the American | | | | unearned income exceeds a certain amount |
| Opportunity tax credit is not claimed with respect | | | | ($3,100 in 2009). The credit percentage increases |
| to a given student). Generally, the Lifetime | | | | as the number of qualifying children increases. |
| Learning tax credit is used for individuals who are | | | | COBRA subsidy: |
| beyond the first four years of postsecondary | | | | Health coverage under an employer's group plan |
| education (e.g., retraining for new job after | | | | may be continued under the Consolidated |
| previously attending at least four years of | | | | Omnibus Budget Reconciliation Act of '85 |
| college). | | | | (COBRA) for former employees and dependents |
| The American Opportunity tax credit is partially | | | | for a period up to 18 months after loss of |
| refundable and may be used to offset a | | | | employment. Premiums are generally required to |
| taxpayer's alternative minimum tax (AMT) liability | | | | be paid by the terminated employee at no more |
| (the Lifetime Learning tax credit is neither | | | | than 102% of the policy premium. |
| refundable nor an AMT liability offset) for 2009 | | | | Terminated employees may elect to continue |
| and 2010. | | | | coverage under COBRA and pay only 35% of the |
| Retirement account distributions: | | | | premium for a period not to exceed nine months. |
| The major financial asset of many unemployed | | | | The employer will receive a subsidy for the 65% |
| taxpayers is their retirement account. Most of | | | | unpaid by the employee. Generally, the COBRA |
| these plans are subject to a 10% penalty on early | | | | premiums paid by a terminated employee are |
| withdrawals, as well as the distribution being | | | | deductible as medical expenses but only if total |
| taxable when received. There are certain | | | | medical expenses exceed 7.5% of AGI. |
| exceptions to this penalty: | | | | Making work pay credit: |
| 1. Distributions that are part of a scheduled series | | | | The making work pay credit is a refundable credit |
| of substantially equal periodic payments (made | | | | against income tax of 6.2% of earned income, up |
| not less frequently than annually) for the life of | | | | to a maximum credit of $400 ($800 for joint |
| the participant (or the joint lives of the participant | | | | return). The credit is phased out starting at |
| and the participant's beneficiary). The payments | | | | $75,000 of modified AGI for single filers ($150,000 |
| under this exception, except in the case of death | | | | for joint returns) at a rate of 2% of income |
| or disability, must continue for at least five years | | | | above the threshold level. Thus the $400 credit is |
| or until the employee reaches age 59 1/2, | | | | phased out completely at AGI of $95,000 (and |
| whichever is the longer period. | | | | the $800 credit at $190,000 for joint returns). |
| 2. Distributions made to an employee after | | | | |