Being Unemployed Can Complicate Tax Time

If you were unemployed for part of last year, you still have to pay your taxes. To make matters worse, being jobless may complicate the task -- at least a bit.

First, the Internal Revenue Service reminds you that any severance pay and unemployment compensation you received are taxable. Also, if you were paid for any accumulated vacation or sick time as part of your severance package, you'll have to pay taxes on that too.

Hopefully, your former employer withheld enough taxes to cover it, so at least you might not have to come up with an extra payment. But make sure all of that income is reported on your tax form.

If you withdrew money from a company pension plan, that's taxable unless it was transferred to another qualifying retirement plan. If you are under age 59 1/2, an additional tax may apply to the taxable portion of your pension. See IRS Publication 575, Pension and Annuity Income, for more information.

Deductions

As we covered in an earlier article, if you incurred expenses while looking for a new job, many of those expenses may be tax deductible. IRS publication 521 also has additional information about what's deductible and what isn't.

If, instead of looking for another job you decided to start your own business, that brings another whole set of changes to your tax return. Most small business owners will have to file a Schedule C, in which income and expenses from the business are listed.

Fortunately, the IRS provides information and classes for new business owners. Check Publication 334, Tax Guide for Small Businesses, for more information.

What if you owe taxes and can't pay them? If you're out of work, and have been for a while, that could be a possibility.

IRS assistance

If you find yourself in that situation, contact the IRS as soon as possible to request a payment plan. Communication is the key to minimizing problems, according to the tax agency.

Special assistance may be available to you. If you are experiencing economic harm, a systemic problem or are seeking help in resolving tax problems that have not been resolved through normal channels, you may be eligible for Taxpayer Advocate Services (TAS) assistance. 

You can reach TAS by calling toll-free 1-877-777-4778.