Losing a job can be a heavy financial blow, but if you've been laid off, you have the right to some useful tax breaks while you wait to return to the workforce. The IRS allows deductions on job search costs, health insurance and job-related moving expenses. Whether or not you are laid off, the expenses of freelancing or self-employment while you wait to return to your old job can always be deducted from your business income.
Job Search Expenses
If you search for a new job, you can deduct job search expenses, which in the IRS rules must be reasonable, ordinary and necessary. This would include travel to and from job interviews, the cost of creating a resume or placing an advertisement, and any upgraded subscriptions to job-search websites. An important and often-overlooked IRS rule on job-search expenses is that you must be looking for work in your chosen profession; you can't deduct the expenses of looking for an entirely new career. You report these expenses along with other itemized deductions on Schedule A.
Many laid-off workers must move to a new location in order to start a new job, or to take a new position with their old employer. Any job-related moving expenses can be deducted from your adjusted gross income; they do not need to be itemized on Schedule A. The new job must be at least 50 miles farther away from your home than your previous job, according to IRS rules. For example, if your old job was 15 miles from your home, the new job must be 65 miles from your home in order to qualify for this deduction. Normally, the IRS also requires that you work in a new position for at least 39 weeks in the 12 months after you move. For workers laid off for any reason other than willful misconduct, however, the IRS waives this requirement.
Health Insurance Premiums
You may be eligible for the Health Coverage Tax Credit. This is available to workers who were laid off work due to the outsourcing of jobs to foreign countries, or to the effects of foreign trade competition. You must be eligible for the Trade Adjustment Assistance program. As of tax year 2012, up to 72.5 percent of your health insurance premium may be taken as a credit against your tax liability. Members of your family may also be eligible to take the credit in case of a divorce or your death, or if you were enrolled in the Medicare program.
Tax Credits and Self-Employment
Being laid off means a reduction in your income, which may allow you to qualify for the Earned Income Tax Credit, if you couldn't take it before. Also, if you freelance or start your own business after a layoff, any expenses related to earning income can be deducted. These expenses can include travel expenses, office expenses, advertising, or the cost of books, tools and uniforms. Self-employed individuals need to file Schedule C, Profit or Loss from Business, as well as Schedule SE to calculate self-employment tax.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.