How many jobs did you have last year?
Whether you got laid off from a company that still exists, walked out with the rest of the crew as they locked the door behind you or just plain quit a job, you had to go through the hassle of finding a new job. Not only did you have to be the "new kid" for a while but you had to figure out where they kept the staples and the foosball table.
The upside of this job-changing mess is that many of your job-hunting expenses may be deductible. The downside is you may have a tough time gathering the information you need to get your tax return together.
Dot-Com Dead, W-2 MIA
If you worked for a company that is no longer in business, emotional trauma aside, you may have difficulty contacting the payroll department if your
-- Wage and Tax Statement
is missing in action or incorrect.
Every quarter a company must file a
-- Employer's Quarterly Federal Tax Return
Internal Revenue Service
reporting the income tax withheld from employees' wages. When a company goes belly-up, it must file a final Form 941 and issue W-2s at the same time, says Bob Trinz, an editor at
, an information provider to tax professionals
So, in theory, the company had until the end of the quarter in which it shut its doors to file its final Form 941 and get out the corresponding W-2s. So, again, in theory, if you were an employee at a now defunct company, you should've gotten your W-2 already.
But what if you didn't? Odds are pretty high the IRS knows exactly how much you were paid, so you have to report that income. Your best bet may be to scrape up your final pay stub. It should have a year-to-date tally of salary as well as all the taxes withheld.
If you file your return by snail mail, a copy of your W-2 must be attached. The best you can do is attach a copy of your final pay stub and include a note explaining your situation to the IRS.
Beware of Excess Social Security
tax withheld becomes an issue when you switch jobs, reminds Trinz. Social Security tax is part of your payroll tax, or FICA tax. Currently, 6.2% of your wages, up to $76,200, are withheld for Social Security for 2000 (or $4,724.40). That jumps to $80,400 in 2001. The remainder of your FICA tax goes to
, so 1.45% of your wages is withheld for that. There is no wage limit on this.
But what if you worked for an employer who withheld Social Security tax on the $20,000 you earned before the company went under? That means $1,240 was withheld on your behalf.
When you start a new job, your new employer has no idea what your past withholdings were, nor is he responsible for figuring them out, so you will start with a clean slate. Assuming you make $80,000 for the rest of the year, you will have $4,960 withheld for Social Security.
But at Dec. 31, you now have had $6,200 withheld. You have overpaid by $1,475.60. The good news is that you can claim this credit on line 61 of your
-- U.S. Individual Income Tax Return
. (Hint: If you input the numbers from your W-2s properly into a tax preparation software, it will calculate this credit for you.)
Job Hunting Costs
Looking for a job ranks right up there with going to the dentist, but at least you may be able to deduct some of the costs you incur.
If you were looking for a job in your current field, you can deduct certain expenses, even if you didn't get a new job. But if you were looking to change fields or there was a substantial break between your last job and the one you're looking for now, for example, to take care of small children or to return to school to pursue postgraduate studies, you can't deduct your job-hunting costs.
So if you're an accountant for a big firm and you decide to look for a job as a accountant in a smaller shop, you can deduct the associated costs. But if you decide that you want to go work at a university and teach accounting, then you're entering "a new trade or business," according to the IRS, so you're out.
The IRS also says that any job in the private sector is a new trade or business for a retired military officer. Oh, and first-time job seekers can forget it altogether.
So what can you deduct?
Amounts you pay to have your resume typed, printed, copied, mailed, etc.
Travel to a new area to look for a new job, assuming those costs are not reimbursed by prospective employer
Telephone charges related to seeking new employment
Employment agency fees
Report these expenses as miscellaneous itemized deductions on
-- Itemized Deductions
. Remember, these expenses then are deductible only to the extent that they exceed 2% of your adjusted gross income. That said, if you take the standard deduction, you cannot claim these expenses.
Be sure to keep solid records of all these expenses in case the IRS comes knocking. That includes evidence of your current job at the time the job search expenses were incurred, written documentation from a prospective employer, receipts, canceled checks, credit card slips and plane tickets.
On the Unemployment Line
If you got sent to the unemployment line as a result of this dot-com crash -- or even just a good old-fashioned Old Economy downsizing -- don't forget that you owe tax on that money. You should've received a
-- Certain Governmental and Qualified State Tuition Program Payments
, so be sure to report that income on line 19 of your 1040.
Same goes for severance pay. It should've been reported on your W-2, and taxes were withheld. Make sure this gets on your tax return because Uncle Sam knows all about it.
And one more reminder: Pay attention to your 401(k). While there's no reason to worry about it since an outside firm administers it, don't forget about it. Remember, you always have the option of rolling it into your new employer's 401(k) plan or into a new IRA.
So go ahead and job hop -- many will argue that it's a great way to keep increasing your salary -- just be sure to keep track of the paperwork as you get used to the new office.
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