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Unemployment has been holding steady recently at 3.7%. But there are still some people losing their jobs \u2014 particularly in certain industries including technology and media. If you\u2019re laid off or terminated from employment, taxes are likely the last thing on your mind. However, there are tax implications due to your altered employment circumstances.<\/p>\n
Depending on your situation, the tax aspects can be complex and require you to make decisions that may affect your tax bill for this year and for years to come. Be aware of these three areas.<\/p>\n
1. Unemployment and payments from your former employer<\/strong><\/p>\n Many people are surprised to find out that federal unemployment compensation is taxable. (Some states exempt unemployment comp from state tax.) In addition, payments from a former employer for any accumulated vacation or sick time are taxable. Although severance pay is also taxable and subject to federal income tax withholding, some elements of a severance package may get special treatment. For example:<\/p>\n 2. Health insurance costs<\/strong><\/p>\n Under the COBRA rules, employers that offer group health coverage generally must provide continuation coverage to most terminated employees and their families. While the cost of COBRA coverage is usually expensive, the amount of any premium you pay for insurance that covers medical care is an eligible medical expense for tax purposes. That means it\u2019s deductible if you itemize deductions and if your total medical expenses exceed 7.5% of your adjusted gross income.<\/p>\n If your former employer pays some of your medical coverage for a period of time after termination, you won\u2019t be taxed on the value of the benefit.<\/p>\n 3. Retirement plan balance<\/strong><\/p>\n Employees whose employment is terminated may need tax planning help to determine the best option for amounts they\u2019ve accumulated in retirement plans sponsored by former employers, such as a 401(k) plan. In many cases, a direct, tax-free rollover to an IRA is the best move. You may also choose to leave the account in your previous employer\u2019s 401(k) plan (although the employer may elect to distribute the funds to you). Or, if you get a new job, you may want to transfer the money in the account with your former employer to your new employer\u2019s 401(k) plan.<\/p>\n If you\u2019re under age 59\u00bd, and make withdrawals from your former company\u2019s plan or IRA to supplement missing income, you may owe an additional 10% penalty tax unless you qualify for an exception.<\/p>\n If a distribution from the retirement plan includes employer securities in a lump sum, the distribution is taxed under the lump-sum rules, except that \u201cnet unrealized appreciation\u201d in the value of the stock isn\u2019t taxed until the securities are sold or otherwise disposed of in a later transaction.<\/p>\n Further, any loans you\u2019ve taken out from your former employer\u2019s retirement plan, such as a 401(k)-plan loan, may be required to be repaid immediately, or within a specified period. If they aren\u2019t, they may be treated as if the loan is in default. If the balance of the loan isn\u2019t repaid within the required period, it will typically be treated as a taxable deemed distribution.<\/p>\n If you need assistance, contact us. We can help you navigate the best path forward during this transition period.<\/p>\n \u00a9 2024<\/em><\/p>\n <\/body> Unemployment has been holding steady recently at 3.7%. But there are still some people losing their jobs \u2014 particularly in certain industries including technology and media. If you\u2019re laid off or terminated from employment, taxes are likely the last thing on your mind. However, there are tax implications due to your altered employment circumstances. Depending […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,6,10],"tags":[8,11,12],"class_list":["post-16929","post","type-post","status-publish","format-standard","hentry","category-articles","category-individual-tax","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16929","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16929"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16929\/revisions"}],"predecessor-version":[{"id":16930,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16929\/revisions\/16930"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16929"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16929"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16929"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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