Tax Deductions If You've Lost Your Job

However, you must claim all income earned from all sources including W-2s from short-term jobs, tips, and cash earned for working as a self-employed individual.

You must still report your unemployment compensation from any state, federal, or railroad agency on your tax return. Generally, there are no income taxes withheld from your unemployment, but you can request the agency paying you to withhold taxes on your income.

Does losing a job affect my taxes in other ways?

Losing your job often means you have a lower income during the year, which can not only lower your taxes, it may even allow you to qualify for the Earned Income Tax Credit (EITC). You can still claim the credit for child and dependent expenses (daycare) while you are looking for work, as long as you have earned income during the year.

If you decide to work for yourself or take a gig like Lyft or Uber, you need to be prepared to make estimated tax payments through the year or to pay taxes at the end of the year.

Don’t forget to see your Tax Pro when you have major life changes like getting laid off, becoming self-employed, taking money from a retirement plan, or getting married or divorced.

Is there a tax credit or deduction for losing my job?

There is no tax credit or deduction for losing your job.

Your income is generally lower, which also lowers your income tax and may allow you to qualify for EITC and the Additional Child Tax Credit, which increases your refund.

However, the way you receive your income can impact your tax return. If you withdraw money from a retirement account such as a 401(k) or IRA and you are under age 59 ½ you will pay income taxes and an additional 10% early withdrawal tax. If you are withdrawing money from your retirement account due to you or a family member having COVID-19, your business closing down, your employer furloughing you, or your daycare becoming unavailable due to COVID-19, you may be exempt from the 10% additional tax.