Finding yourself jobless is always difficult, but you may qualify for government programs and tax benefits that can cushion the blow. Here are a few tax tips to help you through the hard times.
1. Sign up for public benefits, which can be tax-free
You may qualify for various governmental assistance programs if you’ve had a sudden drop in your income. Each year, governmental agencies at the federal, state, and local levels provide $1.8 trillion in benefits to help people through an economic setback. These benefits can include:
- Food aid programs
- Home energy assistance
- Inexpensive phone service
- Health care coverage
- Low-cost car insurance
2. Find out if you have a tax refund by filing early
Because you have been unemployed, you probably won’t reach the income level you expected when you set your income tax withholding at your former job. As a result, you might end the year in a lower tax bracket, and some of the money you withheld to cover your taxes may end up being returned to you in the form of a tax refund.
3. Add your unemployment compensation to your taxable income
Even though unemployment compensation comes from the government, you still must report it on your income tax return. Your state government should provide you with aForm 1099-G early in the year. This form will tell you how much unemployment compensation you received and if any taxes were withheld.
4. Find out how self-employment taxes work
If you became unemployed unexpectedly, you may have turned to side gigs to fill the income gap. If so, that usually means you were self-employed—a situation with its own tax rules. The most important ones include:
- Reporting your income and business expenses on Schedule C (Profit or Loss from Business) or Schedule F (Profit or Loss from Farm Income).
- Attaching Form SE (Self-Employment Tax) to your 1040 and paying Social Security and Medicare taxes on the income you received from your self-employment income.
5. Double-check your tax credits
An unexpected drop in income may mean you’re eligible for tax credits you may not have claimed before, including:
- Earned Income Tax Credit. Depending on your income and the number of children you have, you may be eligible for an Earned Income Tax Credit of up to $6,557 in 2019. This credit can actually be refunded to you even if you do not owe any tax.
- Child Tax Credit. If you have a qualifying child under the age of 17, you may be eligible for a credit of up to $2,000 for each child. These credits lower the taxes you owe on a dollar-for-dollar basis and, depending on your income level, a portion can be refunded to you even if you don’t owe any tax.
- Child and Dependent Care Credit. Even if you are not working, you may be able to deduct the cost of child care while you are looking for work, depending on your income level. Child care, while you are working for yourself, may also be eligible.
- Savers Credit. Just because you were or are unemployed, it doesn’t mean you can’t put aside something toward retirement. Depending on your earned income, you might be able to receive a credit of up to $1,000 ($2,000 for couples) for contributions you make to a qualified retirement plan. To be eligible for this credit in 2019, your income can’t exceed $32,000 if you are single or $64,000 if you are married filing jointly.
Let Uniamericainc.com help you with your income taxes today!