Tax Topics in 2011
The economy wasn’t so bright in 2010. You may have lost your job. Or you may be looking for a new job.
Here are some tips to help you prepare for 2011:
- Severance pay and unemployment compensation are taxable income. This means that you need to report it on your taxes. For severance pay, your employer will issue you a W-2 at the end of the year and appropriate taxes will be withheld. With unemployment compensation, the state will issue you a 1099-G at the end of the year. It’s your responsibility to make sure enough taxes are withheld throughout the year or that your tax is paid in full when you file your taxes. You can file form W-4V to have 10% withheld for federal taxes.
- Be aware of pitfalls when you tap into your retirement savings. As a general rule, withdrawals from your retirement plan are taxable unless they are transferred to a qualified plan, such as an IRA. Also, if you are under the age of 59 ½ at the time of the withdrawal, you may face a 10% penalty* on top of the tax.
* Some exceptions apply to the 10% early withdrawal penalty. For instance, you may avoid the penalty if you use the withdrawn funds to pay for medical care or to purchase your first home. However, there is no exception to the penalty if you withdraw the funds to cover basic living expenses.
- If you are looking for a new job, some costs associated with your job search may be deductible from your taxes. For instance, you may be able to deduct employment and placement agency fees and costs for printing and mailing your resume. In some cases you can deduct the costs of traveling for job interviews. For more information, see IRS publications 529 and 463.
- Do you qualify for the Earned Income Tax Credit? The EITC is designed to lift low-income taxpayers out of poverty. Make sure to claim the credit if you’re eligible. Taxpayers may be eligible for up to $5,666 on their 2010 tax return. You can also claim up to three children this year. Learn if you qualify by reviewing our material on the EITC.
For information about your refund, see Tax Tips.