According to the most recent jobs report by the U.S. Bureau of Labor Statistics, the unemployment rate was 3.7% as of November 4, 2022. With recent large scale layoffs recently announced, we will see if that rate increases when future jobs reports are announced.
If you have experienced a layoff in the past or recently, it can be overwhelming and bring about uncertainty, but you don’t have to navigate it alone. TurboTax is here for you.
If you recently became unemployed or furloughed, you may be wondering:
- What steps do I need to take if I have been laid off and I am unemployed?
- How do I file for unemployment?
- How is unemployment taxed?
- What other tips are there to save money?
Here are key things you need to know to help you if you have been unemployed.
What steps do I need to take if I have been laid off and I am unemployed?
- Double check any accounts like 401 K retirement accounts and decide if you would like to rollover your investments to a different retirement account. You have 60 days to do a direct rollover to avoid taxes on the funds rolled over.
- Follow up to see if you have any severance, vacation, or sick pay that you are eligible for.
- Check and see if you are eligible for unemployment and apply. W-2 workers who are unemployed by no fault of their own are generally eligible.
How do I file for unemployment?
- Gather documents related to your previous employment like time period worked, date last work, reason you are no longer employed, and gross earnings.
- Each state has its own eligibility requirements. Learn how to apply with your individual state unemployment department here.
How Unemployment Income is Taxed?
Unemployment income is taxable and should be included in your income for the year, especially if you have any other income. Some states also count unemployment benefits as taxable income. When it’s time to file your taxes, you will receive Form 1099-G which will show the amount of unemployment income you received. Form 1099-G will also show any federal taxes you had taken out of your unemployment pay.
What other tips are there to save money?
- Adjust your withholdings. Once you are able to find a job, take your unemployment income into account when you are filling out a W-4 withholding certificate for your employer. This is especially important if you didn’t have federal taxes withheld from your unemployment income. TurboTax has an IRS W-4 calculator to help you adjust your withholding whether you want a bigger refund or you want more money in your paycheck.
- Take out federal taxes. Because unemployment income is taxable, one option is to have federal taxes taken out of your unemployment income so there are no surprises when it’s time to file your taxes. Taxpayers can choose to withhold up to 10% from unemployment benefits by filling out a Form W-4V Voluntary Withholding Request and giving it to the agency that pays their benefits. If you don’t choose voluntary withholding, or if you don’t withhold enough you can make estimated tax payments.
- Self-employed take unemployment into account when paying estimated taxes. If you are an independent contractor, side-gigger, or freelancer, keep in mind that unemployment income will be added to your net income from self-employment and may be taxable. When you get ready to pay your estimated quarterly taxes, you can also take your unemployment income into consideration if you don’t have federal taxes withheld from your unemployment.
- Adjust withholding for lump sum severance, vacation, and sick pay. If you receive a severance package or have unused vacation and sick pay you will likely receive additional money that you may not be expecting. Be aware that severance payments, vacation, and sick pay are taxable income and you may receive a large lump sum. With this in mind, you want to make sure you adjust your withholding.
- Take advantage of newfound credits and deductions. There are some tax credits and deductions that are based on income, which you may not have been eligible for in the past, due to higher income which you may now be eligible for: A few examples are the Earned Income Tax Credit and The Saver’s Credit. In fact, the IRS says 20 percent of people miss both of these tax credits.
- Earned Income Tax Credit is a huge credit that is based on your income. If you had lower income in 2022 as a result of lost wages, you may now qualify for EITC, which can be close to $7,000 for a family with three kids.
- Saver’s Credit is a tax credit you can take just for contributing to your retirement. If you contributed to retirement and now fall within the income thresholds to qualify for the Saver’s Credit due to lost wages, you may see a credit worth up to $1,000 if you’re single or $2,000 for married filing jointly.
- Child and Dependent Care Credit is a credit you may be able to take if you paid someone to take care of your child while you worked anytime during the year or while you looked for work, the Child and Dependent Care Credit is another tax credit that you may see more of if you had a lower income. For tax year 2022, the Child and Dependent Care Credit is up to $1,050 if you have one child and up to $2,100 for two or more kids.
When filing your taxes, don’t worry about knowing these tax rules — TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers.