Out of work job seekers can deduct all sorts of expenses, including the cost of printing and sending hundreds of resumes, hiring headhunters, even what they spend on travel to interviews. There are also tax perks they can qualify for if they decide to throw in the towel on the job search and become self-employed or freelance. And for those who can’t come up with the money to pay their taxes right away, the IRS is offering the unemployed additional help this year – a “grace period” that will give them extra time to pay their tax bill without incurring penalties.
“There’s no question, most people would rather have a job than have to look for tax breaks for being unemployed,” said Mark Luscombe, principal federal tax analyst at accounting firm CCH. “But for those facing an extended period of unemployment, they can benefit from knowing the steps to take to lower their tax bill.”
Seeking employment: Job seekers can deduct search-related expenses, including employment and outplacement agency fees, job search site memberships, as well as resume printing and mailing costs.
Travel costs are also fair game. Say you have an interview in Washington, D.C., but live in Ohio. You can write off the airfare or the cost of gas if you drive there. You can even claim these costs if you head to D.C. without an interview lined up, as long as you’re actively looking for work while you’re there.
Be careful not to push it too far when claiming these expenses. Manicures, clothes and makeup are some of the deductions the IRS views as red flags.
One general rule of thumb to follow is that anything that can be used for purposes other than your job hunt can’t be deducted, said Gordon Ulen, a Danvers, Mass.-based CPA. But because it can be hard to know which expenses qualify, and you need to itemize in order to claim the deductions, it’s smart to use a tax preparer. And it’s extremely important to document all of your expenses in case you do end up being audited.
Craziest tax deductions.
Another important thing to remember is that to qualify for job search deductions, you must be looking for a job in your present field of work. You can’t be looking to switch careers.
First-time job seekers, like college graduates, don’t qualify for job search deductions, and neither do taxpayers re-entering the workforce after a substantial period of unemployment, like stay-at-home parents who decide to go back to work.
Job search costs must also exceed 2% of your adjusted gross income to qualify as deductible expenses, which shouldn’t be a problem for most out-of-work job seekers but could prevent some freelancers or self-employed taxpayers from being able to claim them.
And don’t worry: You can still deduct the costs of a job search even if you weren’t hired.
You’re hired!: If you end up landing a job that requires you to relocate, you can often deduct moving costs — including lodging, packing, transportation, tolls and parking.
Typically, you can deduct these costs if the new job is at least 50 miles farther from your previous home than your former workplace was, you moved within a year of taking the new job and you were employed full time for 39 weeks during the first 12 months following the move, said Luscombe.
The $13,000 adoption tax credit is back!
If you haven’t been at the new job 39 weeks yet, you can claim the expense but you have to file an amended return or include the deducted expense as part of your gross income on your return.
Just remember: You can’t claim any costs that your new employer is already reimbursing.
Going it alone: If you gave up on the job hunt and started freelancing or working for yourself, you can deduct self-employment expenses like a home office and certain meal and entertainment costs.
Home office deductions are big audit red flags for the IRS, however. So make sure you document all of your expenses — down to the utilities you use, alarm systems, even housekeeping. To qualify for a home office deduction, you must use the office exclusively for work and it must be your primary place of business — not one of several offices.
And don’t get carried away with the office-related expenses you claim. For example, Luscombe said some taxpayers claim the main household phone line as an office expense, when they would need to have a second office line that they use exclusively for business to qualify as a legitimate expense.
Along with home office expenses, work-related travel costs, health insurance premiums and professional association fees are also acceptable deductions when you’re self-employed.
Health care costs are deductible too, if they exceed 7.5% of your adjusted gross income. If this is the case, deductible medical expenses include doctor visits, treatments, prescriptions and dental costs, said Luscombe.
Watch out!: Aside from being careful about what you deduct, remember to pay taxes on any wages you earned during the year before losing your job. If you were laid off and you received a severance package from your employer, that pay is also considered taxable income. And don’t forget that you’ll be taxed on any unemployment benefits you received during the year.
Can’t pay your taxes?: If you were, or will be, out of work for at least 30 consecutive days during 2011 or 2012 — up to April 17 this year — or you’re self-employed and your business income has dropped by 25% or more due to the economy, the IRS is giving you some extra time to pay your taxes without charging late penalties.
The agency announced this month that it will give qualifying taxpayers a six-month grace period on “failure-to-pay” penalties, which are typically assessed each month a taxpayer is late paying their taxes.
IRS offers relief to unemployed taxpayers. In addition to the penalty relief, the IRS is also allowing more taxpayers to spread out payments on their tax bills. Taxpayers with bills as high as $50,000 are now eligible for installment payments — up from a previous cap of $25,000. And these taxpayers aren’t required to file a financial statement to do so. The maximum installment term was also boosted to 72 months, up from 60 months.
“If you can’t pay your taxes, file anyway, and just work with the IRS to create a payment plan,” said Ulen. “As long as you keep up with the plan, they won’t bother you — but if you ignore them, they can be nasty.”
- Sadly, 43 percent of all American families spend more than they earn each year.
- According to Gallup, the unemployment rate was at 8.3% in mid-January but rose to 9.0% in mid-February.
- The percentage of working age Americans that have jobs is not increasing. The employment to population ratio has stayed very steady (hovering between 58% and 59%) since the beginning of 2010.
- If you gathered together all of the workers that are “officially” unemployed in the United States into one nation, they would constitute the 68th largest country in the entire world.
- In January of 2009, the number of “long-term unemployed workers” in the United States was approximately 2.6 million. Today, that number is sitting at 5.6 million.
- The average duration of unemployment in the United States is hovering close to an all-time record high.
- According to Reuters, approximately 24 million American workers are either unemployed or underemployed right now.
- There are about 88 million working age Americans that are not employed and that are not looking for employment. That is an all-time record high.
- According to CareerBuilder, only 23 percent of American companies plan to hire more employees in 2012.
- In the year 2000, about 20 percent of all jobs in America were manufacturing jobs. Today, about 5 percent of all jobs in America are manufacturing jobs.
- The United States has lost an average of approximately 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.
- Amazingly, more than 56,000 manufacturing facilities in the United States have been shut down since 2001.
- According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.
- Since January 2009, worker health insurance costs have risen by 23 percent.
- An all-time record 49.9 million Americans do not have any health insurance at all at this point, and the percentage of Americans covered by employer-based health plans has fallen for 11 years in a row.
Wrenching testimonies from laid-off workers are overflowing the internet, crying out from the pages of policy reports, and popping up in commercial media. But unions are still grappling with how to organize the unemployed, including their own ex-members, into a political force.
Department of Labor figures for December showed 13.1 million unemployed and actively looking for work, almost half of them for more than six months. Another 8.1 million were working part-time involuntarily, and 2.5 million were too discouraged to look for work.
Unfortunately, unions don’t do a good job of organizing this vast pool said Tom Lewandowski, who spent nine years on layoff from GE starting in 1975.
Now, as president of the Northeast Indiana Central Labor Council in Fort Wayne, he’s leading an effort to survey unemployed workers, watchdog the county’s economic development, and demand accountability from the unemployment office for laid-off workers struggling to navigate the system.
Jobs with Justice chapters have been experimenting with organizing the unemployed, but at a recent conference activists expressed frustration. The model of “unemployed” as an identity group (like race or sex) hasn’t worked, many said.
“How do you organize the unemployed when people don’t want to identify themselves as unemployed?” asked Susan Hurley, executive director of JwJ in Chicago.
Hurley said she tries to communicate that there’s no shame. “These are structural problems in our economy, it’s not about personal failings of anyone who’s out of work right now — 14 million people can’t be wrong,” she says. The group has set up an Unemployed Action Center, open one day a week with computer resources, action-planning meetings, and free lunches.
“The isolation and shame is really tough,” said laid-off Chicago electrician Carole Ramsden. “Especially union members, you have a lot of pride of working at your job, and all of a sudden you lose that.” When she was laid off three years ago, 2,000 members of her local were ahead of her on the list waiting for work.
Some unions have reacted with help for laid-off members. The Transport Workers in New York City voted to pay $5 in extra dues for six months to maintain health insurance for unemployed members. Many of them are now back at work.
A Sheet Metal Workers local in Philadelphia voted several extensions for supplements to unemployment benefits for their members, and in April they voted overwhelmingly to divert an additional 50 cents per hour worked from their welfare fund to support those who’ve run out of unemployment benefits.
In construction trades like sheet metal, unemployed workers are still dues-paying members and can retain a connection with their union, attending meetings and brushing up their skills with training programs.
But other laid-off union members are harder to track.
The Chicago Federation of Labor has given Jobs with Justice lists of members from plants with mass layoffs, Ramsden said.
Latoya Egwuekwe of the Machinists said 35,000 IAM members had been laid off nationwide by January 2010. In response, the union set up Ur Union of the Unemployed (U Cubed), a website designed to connect the unemployed to each other. Fourteen months later, 4,000 had signed up.
The idea was to have unemployed folks get together in person, but the result so far has been largely to generate advocacy emails to politicians.
The AFL-CIO’s community affiliate Working America set up a similar networking site in 2009, Unemployment Lifeline, and on Labor Day last year launched “America Wants to Work” to lobby for the Obama administration’s jobs bill.
The effort focuses on sending postcards and online petitions to politicians, although some efforts, like New Mexico Wants to Work, have produced organizing meetings.
But you can’t organize the unemployed “at 10,000 feet,” said Lewandowski of the many internet networks set up for the purpose.
Put a face on it
Unemployed Action Center members in Chicago have been rallying the first Friday of each month, the day the Department of Labor’s jobs report comes out. They draw press coverage when their colorful signs and personal stories compete with dry jobs numbers.
Following Chicago’s example, Jobs with Justice in Atlanta held press conferences the last three months of 2011, highlighting Georgia’s miserable rankings in national jobs statistics. They’ve also been fighting state legislation that would cut benefits by $30 a week and force the unemployed to work 24 hours a week as “volunteers,” said Charmaine Davis of Atlanta JwJ.
Still, activists agreed, it’s hard to make political activities feel worthwhile to people who expect to be evicted next month. “When you’re unemployed, you’ve got to be doing something, but at the same time, you’ve got to figure out how to survive,” Ramsden said.
Pushing for a jobs bill in Washington may seem too distant, while the computer access and resume coaching provided by many unemployed projects can only help workers compete against other workers for scarce jobs.
The economic development scam
“When we say ‘jobs,’ the corporate class says ‘economic development,’” said Tom Lewandowski of the Northeast Indiana Central Labor Council. But, Lewandowski said, governments’ policy of delivering big subsidies to create jobs is “pretty much fraudulent.”
The unemployed initiative in Fort Wayne has been uncovering abuse and confronting public officials. It’s following the lead of Good Jobs First, a policy center in Washington, D.C., thattracks the sweetheart deals that pass for job creation in many cities and states.
The Indiana group discovered that the state’s Economic Development Corporation regularly exaggerates its success at job creation. A company may have claimed it would hire people full-time at $15 an hour, but when group members investigated, they found temp jobs at minimum wage, or empty cornfields receiving tax breaks for “job creation.”
They fed the info to an Indianapolis TV station, which produced an award-winning report.
Public subsidies even go to contractors that are undermining union jobs. Gayle Goodrich, an Auto Workers benefits rep at Navistar in Fort Wayne, said that after layoffs in 2007, workers sent to the unemployment office were directed back to their own plant under contract to another company, at lower pay and no benefits. They learned that the contractor had been subsidized by economic development funds.
In December the plant closed, and the union won $7 million in job training and relocation assistance for 400 laid-off Navistar workers, when it was able to prove that many of their jobs were being sent overseas and not to Illinois as the company had claimed.
Local campaigns on unemployment often veer towards a more manageable and familiar fight, against discrimination in hiring.
A December 1 report by USAction, a Democratic policy group, collected 700 stories from the unemployed to pressure Congress for jobs spending and extended unemployment benefits.
Age discrimination was mentioned by dozens of participants, as was discrimination against workers simply for being unemployed.
A 61-year-old in Pinellas Park, Florida, said, “There are no openings for mature women when there are so many people available to do entry level work.” The report also noted that recent high school and college graduates are unable to find jobs.
Legislation to stop discrimination against unemployed applicants has been introduced in California, and New Jersey adopted a law to ban job ads that specify “employed only.”
UNITE HERE, the hotel union, has joined with civil rights groups and the National Organization for Women to target TransUnion. That company sells credit reports to employers, creating another Catch-22 for those trying to get back on their feet. The groups say the practice disproportionately affects African Americans, Latinos, and women — and anyone without a job.
In Atlanta, an unemployed speak-out organized by JwJ exposed discrimination faced by the formerly incarcerated, a group facing 25 percent unemployment in Atlanta, Davis said.
The effort looks to follow a successful campaign in Massachusetts to “ban the box.” The check-box on applications where ex-felons must disclose their status often means they can’t even secure job interviews. When they are able to get in the door and explain their situation, their chances of getting hired go up dramatically, Davis said.
An energetic ban-the-box campaign in Atlanta has been led by the people affected, Davis said, whereas more general unemployed organizing has not gained much traction.
“It’s easier to organize on issues versus problems,” she said. “Lack of jobs is a huge problem, there are so many factors that contribute to it. It’s easier to say ‘this group is dealing with high unemployment’” because of discrimination, and try to fix that.
Duty of representation
Lewandowski said central labor bodies should think of themselves as representing unemployed workers, and should consult them like a union would, “in preparation for bargaining.”
The Indiana initiative has been distributing surveys at food banks, on public transit, and at unemployment offices. Complaints about the unemployment office on surveys last year led to a meeting between unemployed workers and the office’s directors. The unemployed workers confronted them about aggravating run-arounds and lack of information on job-training money.
Recently, Occupy Fort Wayne members hit the buses with this year’s version of the survey, listening to the unemployed, starting conversations about the economy, and explaining Occupy to the curious.
“Once you’ve heard someone’s story,” Lewandowski said, “you have a burden of representation.” Source: Jenny Brown for Facing South.