Unemployment benefits collected in 2011 will be taxable.
Bet that wasn't the news you wanted to hear today if you're combing the job sites. But here's some consolation. If you spent either all or part of the year actively looking for a job, there are some ways to skirt the tax pinch.
One is by checking to see if you qualify for the Earned Income Tax Credit. If you earned a low income—whether you worked for someone or you employed yourself—in 2011, you may qualify for a tax break. There are other special qualifying rules, but this credit is especially helpful for individuals and families that may have worked part of the year during 2011.
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Here are the specifics for the EITC and the 2011 tax year:
Earned Income and adjusted gross income (AGI) must each be less than:
- $43,998 ($49,078 married filing jointly) with three or more qualifying children
- $40,964 ($46,044 married filing jointly) with two qualifying children
- $36,052 ($41,132 married filing jointly) with one qualifying child
- $13,660 ($18,740 married filing jointly) with no qualifying children
Tax Year 2011 maximum credit:
- $5,751 with three or more qualifying children
- $5,112 with two qualifying children
- $3,094 with one qualifying child
- $464 with no qualifying children
Investment income must be $3,150 or less for the year.
If you have a large family, take note. Tax legislation from 2010 allowed for a temporary increase in this tax credit and expanded it to workers with three or more qualifying children. But these changes are temporary and there's no word on whether they'll be extended beyond the 2012 tax year.
A new report from the Associated Press outlines a few other tax strategies (with a few parameters, of course) for the unemployed, including deductions for:
Job search expenses: Although first jobs aren't eligible, and you have to be looking for a job in the same profession.
Moving expenses: There are a few caveats here, including a distance test that has to be met and a requirement that you work at least 39 weeks in the new location over the first 12 months in the new area. And, according to the AP, "If you drove to your new home during the first half of 2011, the mileage rate is 19 cents per mile. The rate for July through December is 23.5 cents a mile. Or, the IRS gives you the option of deducting the actual cost of gas and oil for the car. But if the car broke down on the move, you cannot deduct the cost of the repair."
American Opportunity Credit: According to the AP, if you went back to school to train for a new job, you may qualify for the American Opportunity Credit, which is partially refundable, or another education tax break.
Considerations for 2012? Using Form W-4V, voluntarily request that a flat 10 percent tax be withheld so you won't be in for any surprises come tax time.
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